How to Determine if a Worker is an Independent Contractor

Workers Covered by a Section 218 Agreement: State and local government employees may be covered by a voluntary agreement between their state and the Social Security Administration (SSA) to provide social security coverage for workers.

If a position is covered by the Section 218 Agreement, any worker who holds that position is an employee and subject to social security and Medicare tax under the terms of the agreement. (See IRS Publication 963, Chapter 4 - Determining Worker Status.)

IRS link to Section 218 Agreements and Social Security Coverage

State of Florida’s link to Section 218 Agreement and Modifications for state and local government employers

Consequences of Treating an Employee as an Independent Contractor: If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker. See Internal Revenue Code section 3509 for more information.

Government Workers: For most workers, Common-Law Rules are applied to determine whether someone is an employee or an independent contractor. Under Common-Law Rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.

There are special rules that apply to determine whether certain groups of government workers are employees, and additional rules that create exceptions to general rules for income tax, social security and Medicare tax withholding. Some government workers may be deemed to be employees by law, and others may be considered employees but are subject to special legal provisions for withholding income, social security and Medicare taxes.

There are special rules that apply to the following types of workers:

Public Officials
Elected Officials
Fee-Basis Officials
Emergency Workers
Election Workers
Medical Residents

The Common-Law Rules are a set of twenty factors that provide evidence of the degree of control and independence between a worker and the employer. In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

The Common-Law Rules fall into three categories:

Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Misclassification of Workers

“Misclassification” refers to a worker who is an employee under the law but is incorrectly classified as something other than an employee (usually an independent contractor). Most federal and state labor laws protect workers who meet the laws’ definitions of “employee."

Employee or Independent Contractor

Myths About Misclassifying a Worker as an Independent Contractor
(Information from the U. S. Department of Labor)

MYTH #1: If I am an independent contractor under one law, I am an independent contractor under other laws.
FACT #1: Even if you are a legitimate independent contractor under one law, you may still be an employee under other laws.

MYTH #2: If I am classified as an independent contractor, I am not eligible for unemployment insurance (UI).
FACT #2: You may still qualify for UI even if you are classified as an independent contractor.

MYTH #3: I received a 1099 tax form from my employer, and this makes me an independent contractor.
FACT #3: Receiving a 1099 does not make you an independent contractor.

MYTH #4: It does not make a difference if I am classified as an independent contractor or an employee.
FACT #4: If you are misclassified as an independent contractor, you may be denied benefits and protections to which employees are legally entitled. Misclassification also has negative effects on businesses.

MYTH #5: I am an independent contractor because I signed an independent contractor agreement.
FACT #5: Signing an independent contractor agreement does not make you an independent contractor.

MYTH #6: I am not on the payroll, so I am not an employee.
FACT #6: Even if you are not on the payroll, you may still be an employee.

MYTH #7: I have my own employer identification number (EIN) or paperwork stating that I am performing services as a Limited Liability Corporation (LLC) or other business entity. This means that I am an independent contractor.
FACT #7: An EIN or paperwork stating that you are performing services as an LLC or other business entity does not make you an independent contractor.

MYTH #8: My employer wants me to be an independent contractor, and that means I am not an employee.
FACT #8: Your employer cannot misclassify you for any reason.

MYTH #9: I telework or work off-site, so I am an independent contractor.
FACT #9: You are not an independent contractor simply because you work off-site or from home.

MYTH #10: I have been an independent contractor for years; this means I will continue to be an independent contractor.
FACT #10: Being a bona fide independent contractor in the past does not mean you will always be an independent contractor.

MYTH #11: I operate a franchise. This means that I am an independent business.
FACT #11: Operating a franchise does not make you an independent contractor.

MYTH #12: I am an independent contractor because it is established practice in my industry to classify workers like me as independent contractors.
FACT #12: “Common industry practice” is not an excuse to misclassify under the FLSA.

Important Links

Government Workers: Employee or Independent Contractors?

Publication 15-A Department of Treasury, Internal Revenue Services [ Adobe PDF Document ]

Tax Withholding for Government Workers

Form SS-8 – Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding [ Adobe PDF Document ]