During every tax year, the same question arises, “Is this person an employee or a contractor?” The Employee Vs Contractor classification is a critical part of filing and must be correct when it’s time to file and distribute forms to recipients. Incorrect forms can lead to the business being liable for employment taxes for that worker. For more information, check out Revenue Code section 3509.
Worker classification is also important for withholding taxes, if applicable. When a worker is an employee, the business must withhold and pay income taxes, social security taxes, and Medicare taxes, as well as pay unemployment tax on wages. In comparison, a business does not generally have to withhold or pay any taxes for independent contractors.
To help employers overcome this dilemma, we have made our Employee Vs Contractor Questionnaire.
Before we get started, there is an easier way to take this quiz. We’ve also made an interactive web tool to help you get quick and easy results. Scroll to the bottom of the article to find the Employee Vs Contractor web tool!
Employee Vs Contractor Classification Question Types
There are three distinct types of questions that must be asked in determining if a worker is an employee or a contractor. The types of questions include:
- Behavioral
- Worker control over how the work is completed
- Financial
- How is the worker paid, and what are the worker’s investments
- Relationship
- How will the business operate once the worker has completed their job
Now that you are aware of the types of questions this quiz will cover, it is time to hop into the first set of questions for determining Employee Vs Contractor. These are very simple “Yes” or “No” answers to keep a running total of how you answered.
Employee Vs Contractor – Behavioral Questions
1) Does the worker have control over when and where to do the work?
A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done.
If the answer is “Yes,” this generally leans toward the worker being an independent contractor.
2) Does the worker have control over what tools or equipment to use?
A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done.
If the answer is “Yes,” this generally leans toward the worker being an independent contractor.
3) Does the worker have control over what additional workers can be hired or assist with the work?
A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done.
If the answer is “Yes,” this generally leans toward the worker being an independent contractor.
4) Does the worker have control over where to purchase supplies and services to complete the job?
A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done.
If the answer is “Yes,” this generally leans toward the worker being an independent contractor.
5) Does the worker have control over which specific work must be performed by a specific individual?
A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done.
If the answer is “Yes,” this generally leans toward the worker being an independent contractor.
6) Does the worker have control over what order or sequence must be followed when performing the work?
A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done.
If the answer is “Yes,” this generally leans toward the worker being an independent contractor.
7) Is the worker free to do the job with their own judgment and control?
The key consideration is whether the business has retained the right to control the details of a worker’s performance or instead has given up that right.
If the answer is “Yes,” this generally leans toward the worker being an independent contractor.
8) Is the degree of work performed by the worker evaluated at the end once the job has been completed?
This is different from a step-by-step evaluation and only evaluated at the end.
If the answer is “Yes,” this generally leans toward the worker being an independent contractor.
9) Is the worker expected to know how to successfully handle the specified job without the need for additional training?
This can include periodic or ongoing training about procedures and methods.
If the answer is “Yes,” this generally leans toward the worker being an independent contractor.
Employee Vs Contractor – Financial Questions
10) Does the worker have a significant investment in the equipment he or she uses in working for someone else?
There are no precise dollar limits that must be met in order to have a significant investment.
If the answer is “Yes,” this generally leans toward the worker being an independent contractor.
11) Does the worker have fixed ongoing costs that are incurred regardless of whether work is currently being performed?
Independent contractors are more likely to incur ongoing costs regardless of work currently being in progress.
If the answer is “Yes,” this generally leans toward the worker being an independent contractor.
12) Does the worker have the possibility of incurring a loss after completing the work?
For example, the worker has a significant investment in the tools and equipment used, and if the worker has unreimbursed expenses, the worker has a greater opportunity to lose money.
If the answer is “Yes,” this generally leans toward the worker being an independent contractor.
13) Does the worker often advertise, maintain a visible business location, and is available to work in the relevant market?
Workers may continue to advertise even while working on another job site with no consequences from the business.
If the answer is “Yes,” this generally leans toward the worker being an independent contractor.
14) Is the worker paid a guaranteed flat fee for the job and not a regular wage amount for an hourly, weekly, or other period of time?
Some professions, such as lawyers, may be paid hourly as independent contractors as this is the normal calculated rate.
If the answer is “Yes,” this generally leans toward the worker being an independent contractor.
Employee Vs Contractor – Relationship Questions
15) Will the worker be finished with the business once the specific project or period has come to an end?
If the answer is “Yes,” this generally leans toward the worker being an independent contractor.
Employee Vs Contractor Quiz Results
Now that you have the accumulative total of “Yes” and “No” answers from the Employee Vs Contractor Quiz, it is time to see which one has the higher number. If “Yes” answers are higher, there is a higher probability that the worker is an independent contractor. If “No” answers are higher, there is a higher probability the worker is an employee.
This is very important, according to the IRS, “There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.”
What if I’m still not sure about worker classification after the quiz?
If there is still some confusion after taking the Employee Vs Contractor Quiz, there is a different approach you may take. The IRS has a specific form you may fill out, Form SS-8. The form does not have to be filled out by a business to be considered valid. Employees and independent contractors are allowed to fill out and submit it to the IRS.
The big disadvantage this approach has is the time frame the IRS may take when coming to their conclusion. Completing Form SS-8 and waiting for a response can take up to six months.
I have my results. What’s next?
Okay, so you finished the Employee Vs Contractor Quiz and determined how to classify your workers. The next step is to complete the appropriate filings for each type of worker.
If the worker is classified as an independent contractor, the associated forms are Form W-9, Request for Taxpayer Identification Number and Certification, & Form 1099-NEC, Nonemployee Compensation. We recommend using our Essential Guide: Mastering Form 1099-NEC and Form W-9 Guide to get the full breakdown for these forms.
If the worker is classified as an employee, then the associated forms are Form W-3, Transmittal of Wage and Tax Statements, and Form W-2, Wage and Tax Statement. We recommend using our Essential Guides, Mastering Form W-2 and Mastering Form W-3, for the full breakdown of these form types.
To make sure the employer meets all the requirements for filing forms to the IRS, we recommend finding an authorized software provider to handle the e-filing portion of this process.
What can employees do if they have been misclassified as independent contractors?
If a worker feels they have been misclassified as an independent contractor by their employer, they can file Form 8919 to report uncollected Social Security and Medicare taxes.
If the employer has no reasonable basis for making this classification, the employer is liable for employment taxes for that worker and the relief provision under Publication 15-A.
Employee Vs Contractor Interactive Tool
Reading these questions and keeping track of the answers is okay, but what if I told you there was an even simpler way to take the same quiz? We recommend this Employee Vs Contractor interactive tool for an easier and smoother experience!
Using our interactive Employer Vs Contractor Questionnaire tool allows users to see the results displayed with a visual representation of “yes” and “no” responses.
Conclusion
The Employee Vs Contractor classification is a critical part of filing. Incorrectly classifying workers can lead to additional fines and penalties for the business.
To help businesses overcome this dilemma, we have made our interactive Employee Vs Contractor Questionnaire tool.
BoomTax, The Boom Post, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.
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