There is a significant difference between the tax treatment of payments made to employees and those made to independent contractors. For example, the University does not have to withhold or pay income or social security taxes on payments made to independent contractors. For that reason it is important that you are able to distinguish between these two most common types of payment situations. The University Accounting Office or Purchasing Office should be contacted for assistance in determining if an employer-employee or independent contractor relationship exists.

TWENTY COMMON LAW FACTORS

The Twenty Common Law Factors which indicate whether an individual is an employee or an independent contractor are:

1. Instructions. An employee is required to 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 give instructions.
   
2. Training. An employee is 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. The employee's services are integrated into the business operations because the services are important to the success or continuation of the business.
   
4. Services rendered personally. An employee renders services personally. This indicates that the employer controls the methods as well as the results.
   
5. Hiring Assistants. An employee works for an employer that hires, supervises, and pays assistants. An independent contractor hires, supervises, and pays assistants under a contract that requires him or her to provide materials and labor and to be responsible for the result.
   
6. Continuing relationship. An employee has a continuing relationship with an employer. A continuing relationship may exist where work is performed at frequently recurring, although irregular, intervals.
   
7. Set hours of work. An employee has set hours to work. The independent contractor is the master of his or her own time.
   
8. Full-time work. An employee normally works full-time for the employer. An independent contractor can work for whom he or she chooses.
   
9. Work done on premises. An employee works on the premises of an employer, or works on a route, or at a location designated by an employer.
   
10. Order or sequence set. An employee must 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 must submit reports to an employer. This shows that the employee must account to the employer for his or her actions.
    
12. Payments. An employee is paid by the hour, week, or month. An independent contractor is paid by the job or on straight commission.
    
13. Expenses. An employee's business and travel expenses are paid by the employer. This shows that the employee is subject to regulation and control.
    
14. Tools and materials. An employee is 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 make a profit or suffer a loss.
    
17. Works for more than one person or firm. An independent contractor gives his or her services to a multiple of unrelated persons or firms at the same time.
    
18. Offers services to the general 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 their 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 for failure to complete the job.
    

A "YES" answer to any question except number 15, 16, 17, or 18 indicates a possible employee/employer relationship.

A "NO" answer to either question number 15, 16, 17, or 18 indicates a possible employee/employer relationship.

Particular attention should be paid to the wording "the right to ..." in some of the factors.