Determining Worker Status: Employee or Independent Contractor?

When hiring workers it is important for tax purposes, to correctly categorize the position as an employee or an independent contractor? Classification of workers is determined by three main factors, including behaviorial, relationship of parties, and financial controls, which are detailed below for each status:

Employee Factors

Behavioral controls: If we direct or control the work to be done, how to do the work, what to do, when to do the work, or have the right to direct or control the work. For example, control is when an employer sets the work schedule, the hours, trains the person, sets the location and the tasks to be done.

Relationship of parties: The employee does not have other clients; does not hold himself out  to the public, or advertise or yellow pages, etc.; can be fired or terminated; or there is a continuing relationship and no limited time frame.

Financial controls: Determining factors include if the worker is reimbursed for business expenses; cannot earn a profit or loss on the business; is the paid by the hour or by the week; works only for Rutgers.

Independent Contractor Factors

  • Worker sets own schedule, work location, tasks, and how to do perform tasks
  • Can also work for others during contract
  • Paid by project
  • Cannot be fired, except for non-delivery of contract
  • No continuing relationship is anticipated
  • Has other clients or hold self out for other business
  • Has significant investment in the business...rents space, has employees etc
  • Pays for own expenses