Independent Contractor Status: Financial Control


 

By:  Martha Jenkins

What are the key issues driving financial control and independent contractor determination?

IRS guidance, in determining if a person is designated as an employee or independent contractor, gives a starting point for your analysis.

Financial Control:  Consider evidence of whether the business has the right to direct or control the economic aspects of the worker’s activities. Although economic aspects of the relationship between a worker and a business are significant in determining worker status, it is equally important to understand some features of the economic relationship are not relevant.    

Illustrations of financial control and the activities undertaken.

  • Significant Investment – A significant investment is evidence an independent contractor relationship may exist.  \It is important to note a significant investment is not necessary for independent contractor status. Some types of work simply do not require large expenditures. Even if large expenditures (i.e., costly equipment) are required, an independent contractor may rent the equipment needed at fair rental value. There are no precise dollar limits that must be met in order to have a significant investment.

  • Unreimbursed Expenses – Businesses often pay business or travel expenses for their employees. Independent contractors may contract for direct reimbursement of certain expenses or may seek to establish contract prices that will reimburse them for these expenses. Therefore, it is important to focus on unreimbursed expenses, which better distinguish independent contractors and employees.

  • Opportunity for Profit or Loss – The ability to realize a profit or incur a loss is probably the strongest evidence that a worker controls the business aspects of services rendered. You should consider whether the worker is free to make business decisions which effect the worker’s profit or loss. If the worker is making decisions which effect his or her bottom line, the worker likely has the ability to realize profit or loss and would be considered an independent contractor.

The Independent Contractor Status Determination course will help you analyze the specifics of your situation for correct independent contractor and employee classifications.

Notice:  Alliance Training and Consulting, Inc. provides the contents of this page for general purposes only. You should not substitute this information for individual consultation with a qualified professional in the field. Alliance Training and Consulting, Inc. is not engaged in rendering legal services.

By:  Martha Jenkins

© 2015 Alliance Training and Consulting, Inc.

 


 

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