Employee or Independent Contractor?

Guidelines to Clarify an Often-Uncertain Work Relationship

By Melanie Balestra, NP, Esq.

In determining if you are an independent contractor (IC) or an employee, the NP must meet California State requirements for IC as well as the IRS requirement.  The 20 factors used to evaluate right to control and the validity of independent contractor classifications for the IRS include:

  1. Level of instruction. If the company directs when, where, and how work is done, this control indicates a possible employment relationship.
  2. Amount of training. Requesting workers to undergo company-provided training suggests an employment relationship since the company is directing the methods by which work is accomplished.
  3. Degree of business integration. Workers whose services are integrated into business operations or significantly affect business success are likely to be considered employees.
  4. Extent of personal services. Companies that insist on a particular person performing the work assert a degree of control that suggests an employment relationship. In contrast, independent contractors typically are free to assign work to anyone.
  5. Control of assistants. If a company hires, supervises, and pays a worker's assistants, this control indicates a possible employment relationship. If the worker retains control over hiring, supervising, and paying helpers, this arrangement suggests an independent contractor relationship.
  6. Continuity of relationship. A continuous relationship between a company and a worker indicates a possible employment relationship. However, an independent contractor arrangement can involve an ongoing relationship for multiple, sequential projects.
  7. Flexibility of schedule. People whose hours or days of work are dictated by a company are apt to qualify as its employees.
  8. Demands for full-time work. Full-time work gives a company control over most of a person's time, which supports a finding of an employment relationship.
  9. Need for on-site services. Requiring someone to work on company premises – particularly if the work can be performed elsewhere – indicates a possible employment relationship.
  10. Sequence of work. If a company requires work to be performed in specific order or sequence, this control suggests an employment relationship.
  11. Requirements for reports. If a worker regularly must provide written or oral reports on the status of a project, this arrangement indicates a possible employment relationship.
  12. Method of payment. Hourly, weekly, or monthly pay schedules are characteristic of employment relationships, unless the payments simply are a convenient way of distributing a lump-sum fee. Payment on commission or project completion is more characteristic of independent contractor relationships.
  13. Payment of business or travel expenses. Independent contractors typically bear the cost of travel or business expenses, and most contractors set their fees high enough to cover these costs. Direct reimbursement of travel and other business costs by a company suggests an employment relationship.
  14. Provision of tools and materials. Workers who perform most of their work using company-provided equipment, tools, and materials are more likely to be considered employees. Work largely done using independently obtained supplies or tools supports an independent contractor finding.
  15. Investment in facilities. Independent contractors typically invest in and maintain their own work facilities. In contrast, most employees rely on their employer to provide work facilities.
  16. Realization of profit or loss. Workers who receive predetermined earnings and have little chance to realize significant profit or loss through their work generally are employees.
  17. Work for multiple companies. People who simultaneously provide services for several unrelated companies are likely to qualify as independent contractors.
  18. Availability to public. If a worker regularly makes services available to the general public, this supports an independent contractor determination.
  19. Control over discharge. A company's unilateral right to discharge a worker suggests an employment relationship. In contrast, a company's ability to terminate independent contractor relationships generally depends on contract terms.
  20. Right of termination. Most employees unilaterally can terminate their work for a company without liability. Independent contractors cannot terminate services without liability, except as allowed under their contracts.

Overall, the main factors the IRS reviews in determining IC status are: 1) Behavior Control – Generally, anyone who performs services for you is an employee if the employer has the right to control what will be done and how it will be done. 2) Financial Control – Who directs or controls the business aspects of work? Independent contractors are in business for themselves, offer their services to the public, and have a significant financial investment in the facilities used in performing services. They can realize a profit or incur a loss. 3) Relationship of the Parties – How does the employer and employee perceive the relationship? A permanent relationship and worker benefits generally indicate an employer-employee relationship. However, the substance of the relationship determines whether workers are employees, not a job title or written contract.

Because the Fair Labor Standards Act (FLSA) applies only to employer-employee relationships, independent contractors are not covered if they have a dispute as a worker.  One of the main advantages or disadvantages of being an IC is that the employer does not have to pay any state required employer deductions.  This means that the IC has no Social Security, Medicare, workers’ compensation, or other deductions from his/her paycheck.  If you are an IC, you may want to request a higher pay than the employees since up to 20 percent of each employee paycheck is withdrawn for the many deductions required by the state.

California looks at responses to following questions in determining IC status.  A “Yes” response to these questions indicates employment status:

  • Do you instruct or supervise the person when he or she is working?
  • Can the worker quit or be discharged at any time?
  • Is the work being performed part of your regular business?

A “Yes” response to these questions indicates IC status:

  • Does the worker have a separately established business?
  • Is the worker free to make business decisions that affect his or her ability to profit from the work.
  • Does the individual have a substantial investment that would subject him or her to a financial risk or loss.


Additional factors that may be considered are:

  • Do you have employees who do the same type of work?
  • Do you furnish the tools, equipment or supplies used to perform the work?
  • Is the work considered unskilled or semi-skilled labor?
  • Do you provide training for the worker?
  • Is the worker paid a fixed salary, an hourly wage or based on a piece rate basis?
  • Did the worker believe that he or she is an employee?

It is possible for California to determine that you have IC status and the IRS to disagree and vice versa.  As you can readily see from the above discussion, it may not be easy to determine if you will have independent contractor status with employment.  You need to consider the above discussion if your plan is to be the employer.  If the above questions and points cannot easily be determined, it may be best to seek the advice of an attorney or accountant.