Yes, jobs are being shipped overseas, but more importantly they are being impacted here at home. You know the scenario: you’re hired as a contractor but asked to work as an employee without benefits or employee rights. It’s happening more and more in the graphic arts world, both within graphic arts firms and with clients that “own” you but don’t consider you an employee.
And the consequences are big. An employer must generally withhold income taxes, withhold and pay social security and Medicare taxes, and pay unemployment taxes on wages paid to an employee. An employer does not generally have to withhold or pay any taxes on payments to independent contractors.
If you feel like you may be a victim (or might be victimizing someone) in this way, take the time to answer the “IRS 20 Questions,” still the best way to determine contractor or employee status.
- Instructions. An employee must comply with instructions about when, where, and how to work. Even if no instructions are given, the control factor is present if the employer has the right to control how the work results are achieved.
- Training. An employee may be trained to perform services in a particular manner. Independent contractors ordinarily use their own methods and receive no training from the purchasers of their services.
- Integration. An employee’s services are usually integrated into the business operations because the services are important to the success or continuation of the business. This shows that the employee is subject to direction and control.
- Services rendered personally. An employee renders services personally. This shows that the employer is interested in the methods as well as the results.
- Hiring assistants. An employee works for an employer who hires, supervises, and pays workers. An independent contractor can hire supervise and pay assistants under a contract that requires him or her to provide materials and labor and to be responsible only for the result.
- Continuing relationship. An employee generally has a continuing relationship with an employer. A continuing relationship may exist even if work is performed at recurring although irregular intervals.
- Set hours of work. An employee usually has set hours of work established by an employer. An independent contractor generally can set his or her own work hours.
- Full-time required. An employee may be required to work or be available full-time. This indicates control by the employer. An independent contractor can work when and for whom he chooses.
- Work done on premises. An employee usually works on the premise of an employer, or works on a route or at a location designated by an employer.
- Order or sequence set. An employee may be required to perform services in the order or sequence set by an employer. This shows that the employee is subject to direction and control.
- Reports. An employee may be required to submit reports to an employer. This shows that the employer maintains a degree of control.
- Payments. An employee is paid by the hour, week, or month. An independent contractor is usually paid by the job or on a straight commission.
- Expenses. An employer generally pays an employee’s business and travel expenses. This shows that the employee is subject to regulation and control.
- Tools and material. An employer normally furnishes an employee with significant tools, materials, and other equipment.
- Investment. An independent contractor has a significant investment in the facilities he or she uses in performing services for someone else.
- Profit or loss. An independent contractor can make a profit or suffer a loss.
- Work for more than one person or firm. An independent contractor is generally free to provide his or her services to two or more unrelated persons or firms at the same time.
- Offers services to vernal public. An independent contractor makes his or her services available to the general public.
- Right to fire. An employee can be fired by an employer. An independent contractor cannot be fired so long as he or she produces a result that meets the specifications of the contract.
- Right to quit. An employee can quit his or her job at any time without incurring liability. An independent contractor usually agrees to complete a specific job and is responsible for its satisfactory completion, or is legally obligated to make good if there is failure to complete it.
These factors, naturally, should be considered guidelines only. Not every factor is applicable in every situation, and the degree of importance of each depends on the type or work and individual circumstances.
If you’re still not sure, and want the IRS to make a determination, file Form SS-8 a “Determination of Employee Work Status for purposes of Federal Employment Taxes and Income Tax Withholding.”
Better yet, work it out with the person paying you and keep the IRS out of it.
Read more by Eric J. Adams.
This article was last modified on January 6, 2023
This article was first published on March 8, 2004
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