Employee vs. Independent Contractor

When should someone be considered an employee vs. an independent contractor?
There is a variety of factors, known as the common law rules, used to determine if a person should be an independent contractor or an employee. These factors are merely a guide for determining if an individual is an employee or an independent contractor. The three main categories of factors are as follows:

1. Behavior control
2. Financial control
3. Type of Relationship

Behavior control: Behavior control means an employer has the right to control how the worker does the work. The key to determine if behavior control exists depends on whether or not the business has retained the right to control the details of the worker's job performance. An independent contractor typically controls how the work is to be performed, but an employee usually must follow the employer's instructions on when, where, and how the work is to be performed.

Financial control: Financial control occurs when the business has the right to control the business aspects of the worker's activities. For instance, an independent contractor has the right to control which jobs they want to perform and has the ability to work for more than one company at a time. However, employees often work for one company and do not make their services available to the public.

Type of Relationship: What is the relationship between the business and the worker? Sometimes there is a written contract describing the intended relationship between the two parties. If the relationship between the worker and the business is temporary in nature, it is more likely to indicate independent contractor status. Another indicator of the type of relationship is if the worker receives employee benefits such as health insurance, pension plans, vacation, and sick pay. If the worker receives benefits, the worker is most likely an employee.

http://www.irs.gov/newsroom/article/0,,id=173423,00.html