Answer to Question of the Week #12
Each week, we post a thought-provoking question for your consideration. Here’s last week’s question, along with your answers . . .
How do you tell if an independent contractor is really an independent contractor (as opposed to an employee)?
a. It depends on a confusing, ambiguous multi-factor test dependent on behavioral control, financial control and the parties’ overall relationship that differs in workers’ compensation, tax and other contexts (44%)
b. It is the employer’s option to choose either status, depending on which is more advantageous from a tax perspective (2%)
c. It is the employee’s option to choose (4%)
d. Under the newly passed Contractor Clarification Act (CCA), a person can be an independent contractor only if s/he (1) is separately incorporated, (2) provides services to other companies and (3) works in a recognized “independent profession” as defined under the law (50%)
The correct answer is “a.” Unfortunately, there’s no such thing as the “Contractor Clarification Act.”
The test for independent contractor status is confusing and is different in workers’ comp, tax and other contexts. Indeed, the IRS test used to be called the “Twenty Factor Test.” Not long ago, it was “shortened” to the “Four Factor Test” each of which, unfortunately, contains five criteria each.
Generally speaking, all of the tests come down to whether the company controls the person or whether s/he is truly an independent agent serving more than one company. In our experience, true independent contractors are a rare breed. If you have financial and behavioral control over a person, s/he is probably an employee and not an independent contractor.
Our viewers are now batting .500 overall (6 right, 6 wrong) on our weekly questions.
The next one will be coming your way soon. Thanks for your participation!
November 14th, 2007 at 10:24 am
This is a very timely topic. Classifying workers as independent contractors must be done very carefully.
Keep up the great blog!