Independent Contractor Test

                                            Test Of the Employment Relationship

                                                             Under The FLSA

1. The nature and degree of control by the principal

Independent contractor

Employee

Work must meet contract specifications

Work must be satisfactory to the employer

Business is completely independent from client/customer being served

Employer controls the business of the person performing the work

Contract cannot be canceled or person cannot be fired as long as he/she produces a result that meets contract specifications

Can be fired or contract can be canceled at employer's discretion with little or no notice

Submits few, if any reports

Must submit regular oral/written reports to employer

Hires own assistants

Employees of alleged independent contractor must be approved and/or can be fired by the employer

Books and payroll records are kept and prepared independently of client/customer books

Employer keeps books and prepares payroll for the alleged independent contractor

Can work when and for whom he/she chooses

Is assigned a particular territory without freedom of movement outside thereof

Uses his/her own methods and receives no training from the buyer of the service

Must comply with instructions about when, where, and how to work

Sets own hours

Hours are set by employer

Negotiates or sets own fees

Employer sets fees charged customers

Establishes order or sequence of work

Must perform services in the order or sequence set by employer

Hires assistants to provide service

Renders service personally

May perform the work where he/she chooses

Works on the premises, on a route, or at a location designated by the employer

Agrees to complete a specific job and is responsible for completion or he/she is obligated to make good for failure to complete it

May quit without any liability

2. The extent to which the services in question are an integral part of the employer's business

Independent contractor 

Employee

Performs services that are considered peripheral or providing services/maintenance to the business

Performs type of services considered to be indispensable to the success or continuation of the business

3. The permanency of the relationship

Independent contractor

Employee

Performs work contracted for then moves on to another client/customer.  

Is hired for an indefinite period or for relatively long periods.  

Note: employees are considered to have a continuing relationship with the employer even if work is performed at irregular intervals as long as they are frequently recurring.

4. The amount of investment in facilities and equipment

Independent contractor

Employee

Has significant investment in the facilities and equipment they use

Is furnished tools, materials, or other equipment by an employer

5.  The opportunity for profit and loss

Independent contractor

Employee

Can make a profit or suffer a loss

Business and travel expenses are paid by the employer

Is paid by the job

Is paid hourly, weekly, or monthly

Is interested in making sure fees charged clients/customers are sufficient to cover costs and produce a profit

Does not have an independent economic or other interest in his/her work, other than increasing his/her own pay

6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent enterprise

Independent contractor

Employee

Determines what projects/jobs to bid on or seek.

Clients/customers are selected by employer

Determines the fee to charge in order to cover costs and profit

Charges the fee established by employer

Decides whether to expand the business by accepting more clients, hiring more employees, expanding facilities, obtaining financing, etc.

Has little or no input into operating policies of the business

Other factors to consider

Independent contractor

Employee

Works for more than one person or firm.     Provides services to two or more unrelated persons or firms at the same time

Works full-time for one employer or part-time for two or more employers when full-time work is not available from one employer.

Makes his/her services available to the general public

Does not advertise their services

Hires, supervises, and pays assistants under a contract requiring materials and labor be provided toward a specific result

Works for an employer who hires, supervises, and pays assistants

Is listed in the account to which attorney's fees, accountant's fees, and the like are charged

Is listed on the payroll with the appropriate tax deductions, or the payments to him/her are charged to the labor, salary, or selling expense account

Performs specialized work which is not part of the production work of the business 

Performs work which is the same or similar as the other employees of the business

Tax return shows remuneration as self-employment income.  Principal's tax return shows expense.

Tax return shows remuneration as wages.     Employer's tax return shows payments as a labor cost

Paid differently according to arm's length negotiation of fee with each customer/client

Paid at the same or similar rate as other employees performing same work