b'Marketer Member NewsRules & RegulationsINDEPENDENT Contractor or Employee The IRS REQUIRESEnergy Marketers to Determine Worker Status What order or sequence to follow when opportunity to lose money (i.e., their expenses will exceed theirperforming the work. income from the work). Having the possibility of incurring aDegree of instruction:Degree of instruction means that loss indicates that the worker is an independent contractor. the more detailed the instructions, the more control the business Services available to the market:An independent con- exercises over the worker. More detailed instructions indicatetractor is generally free to seek out business opportunities. Inde-that the worker is an employee. Less detailed instruction pendent contractors often advertise, maintain a visible business reflects less control, indicating that the worker is more likely location and are available to work in the relevant market.an independent contractor. Method of payment:An employee is generally guaranteed Evaluation systems:If an evaluation system measures thea regular wage amount for an hourly, weekly or other period of details of how the work is performed, then these factors wouldtime. This usually indicates that a worker is an employee, even point to an employee. If the evaluation system measures just thewhen the wage or salary is supplemented by a commission. An end result, then this can point to either an independent contrac- independent contractor is usually paid by a flat fee for the job. tor or an employee. However, it is common in some professions, such as law, to pay Training:If the business provides the worker with training onindependent contractors hourly.how to do the job, this indicates that the business wants the jobRelationship Factorsdone in a particular way. This is strong evidence that the workerType of relationshiprefers to facts is an employee. Periodic or ongoing training about proceduresthat show how the worker and busi-and methods is even stronger evidence of an employer-employ- ness perceive their relationship to each ee relationship. However, independent contractors ordinarilyother. The factors for the type of relationship betweenuse their own methods. two parties generally fall into the categories of:Financial FactorsWritten contracts:Although a contract may state that the Financial controlrefers to facts thatworker is an employee or an independent contractor, this is not show whether or not the business has thesufficient to determine the workers status. The IRS is not re-right to control the economic aspects ofquired to follow a contract stating that the worker is an indepen-the workers job. The financial controldent contractor, responsible for paying their own self-employ-factors fall into the categories of: ment tax. How the parties work together determines whether theSignificant investment:An independent contractor oftenworker is an employee or an independent contractor. has a significant investment in the equipment they use in work-Employee benefits:Employee benefits include things ing for someone else. However, in many occupations, such aslike insurance, pension plans, paid vacation, sick days and construction, workers spend thousands of dollars on the toolsdisability insurance. Businesses generally do not grant these and equipment they use and are still considered to be employ- benefits to independent contractors. However, the lack of these ees. There are no precise dollar limits that must be met in ordertypes of benefits does not necessarily mean the worker is an to have a significant investment. Furthermore, a significantindependent contractor.investment is not necessary for independent contractor status, assome types of work simply do not require large expenditures.Permanency of the relationship:If a worker is hired withUnreimbursed expenses:Independent contractors arethe expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally more likely to have unreimbursed expenses than are employees.considered evidence that the intent was to create an employer-Fixed ongoing costs that are incurred regardless of whether workemployee relationship.is currently being performed are especially important. However, employees may also incur unreimbursed expenses in connection Services provided as key activity of the business:If awith the services that they perform for their business. worker provides services that are a key aspect of the business, it Opportunity for profit or loss:The opportunity to makeis more likely that the business will have the right to direct and control his or her activities. For example, if a law firm hires an a profit or loss is another important factor. If a worker has aattorney, it is likely that it will present the attorneys work as significant investment in the tools and equipment used and ifits own and would have the right to control or direct that work. the worker has unreimbursed expenses, the worker has a greaterThis would indicate an employer-employee relationship.WPMA News / Fall 202339'