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Distinguishing between independent contractors and employees.

Publication: The Tax Adviser
Publication Date: 01-OCT-07 		Format: Online
Delivery: Immediate Online Access

Article Excerpt
Before a business entity pays for services rendered, it should consider this: Is it paying a contractor or has it hired an employee? This question arises every time a business pays a person for services rendered. At times the answer is dear, but often the minute details will present a challenge to the small business owner when classifying the service provider.

When expanding its workforce, a business will either hire an employee or retain an independent contractor. To categorize the "new addition" consider the relationship between the business (payer) and the individual (payee):Who holds the "right to control"?

The worker's classification is determined by analyzing three factors:

1. Behavioral control is ascertained by determining which party retains the rights to control where, when, and how a job should be done.

2. Financial control considers the business aspects of the relationship,...

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