The IRS 20 Questions:

An employer must generally withholds income taxes, withhold and pay social security and Medicare taxes, and pay unemployment taxes on wages paid to en employee. An employer does not generally have to withhold or pay any taxes on payments to independent contractors.

Common-law rules. To help you determine whether an individual is an employee under the common-law rules, the IRS has identified 20 factors which are used as guidelines to determine whether sufficient control is present to establish an employer-employee relationship.

These factors should be considered guidelines. Not every factor is applicable in every situation, and the degree of importance of each factor varies depending on the type or work and individual circumstances. However, all relevant factors are considered in making a determination, and no one factor is decisive.

It does not matter that a written agreement may take a position with regard to any facts or state that certain factors do not apply, if the facts indicate otherwise. If an employer treats an employee as an independent contractor and the relief provisions discussed earlier do not apply, the person responsible for the collection and payment of withholding taxes may be held personally liable for an amount equal tot the taxes that should have been withheld.

The 20 factors indicating whether an individual is an employee or an independent contractor are;

1. 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.

2. 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.

3. Integration
An employee 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.

4. Services rendered personally
An Employee renders services personally. This shows that the employer is interested in the methods as well as the results.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. Reports
An employee may be required to submit reports to an employer. This shows that the employer maintains a degree of control.

12. 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.

13. Expenses
An employee?s business and travel expenses are generally paid by an employer. This shows that the employee is subject to regulation and control.

14. Tools and material
An employee is normally furnished significant tools, materials, and other equipment by an employer

15. Investment
An independent contractor has a significant investment in the facilities he or she uses in performing services for someone else.

16. Profit or loss
An independent contractor can more a profit or suffer a loss.

17. 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.

18. Offers services to vernal public
An independent contractor makes his or her services available to the general public.

19. 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.

20. 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 to failure to complete it.

Form SS-8
In doubtful cases, the facts will determine whether or not there is an actual employer-employee relationship. If you want the IRS to determine whether a worker is an employee, file Form SS-8. Determination of Employee Work Status for purposes of Federal Employment Taxes and Income Tax Withholding, with the District Director.