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Whether you are an employer or a worker, it is important to understand the differences between being an employee or an independent contractor. Knowing the factors that determine whether you are classified as an employee or an independent contractor can help you determine your rights and benefits under the law. In this article, we will explore the 20-factor test used by the Internal Revenue Service (IRS) to determine whether a person is an employee or an independent contractor.

The 20-factor test is a set of guidelines used by the IRS to determine the level of control and independence a worker has in their job. These factors are grouped into three main categories: behavioral control, financial control, and the relationship between the worker and the employer.

Behavioral Control

The first set of factors in the 20-factor test deals with behavioral control. Behavioral control refers to the level of control an employer has over how a worker performs their job. The following factors fall under this category:

1. Instructions: An employee is usually given specific instructions on how to perform their job, while an independent contractor has more freedom to determine how the work will be done.

2. Training: An employee is often trained to perform their job according to the employer`s methods, while an independent contractor usually has specialized skills or training that they bring to the job.

3. Integration: An employee is usually integrated into the employer`s business operations, while an independent contractor is a separate entity from the employer`s business.

4. Services: An employee is usually required to perform their services personally, while an independent contractor can hire others to perform the work.

Financial Control

The second set of factors in the 20-factor test deals with financial control. Financial control refers to the level of control an employer has over the financial aspects of the work being performed. The following factors fall under this category:

1. Investment: An independent contractor usually has a significant investment in their equipment, tools, or facilities, while an employee is usually provided with these items by the employer.

2. Expenses: An independent contractor usually incurs their own expenses while performing the work, while an employee is usually reimbursed for their work-related expenses.

3. Opportunity for profit or loss: An independent contractor usually has the opportunity to earn a profit or incur a loss based on the work they perform, while an employee is usually paid a salary or hourly wage.

4. Payment: An independent contractor is usually paid by the job or project, while an employee is usually paid a regular salary or hourly wage.

Relationship between the Worker and the Employer

The third and final set of factors in the 20-factor test deals with the relationship between the worker and the employer. This category includes several factors that can help determine whether the worker is considered an employee or an independent contractor. The following factors fall under this category:

1. Written contracts: An independent contractor often has a written contract with the employer, while an employee may not have a written contract.

2. Benefits: An employee is usually provided with benefits, such as health insurance and vacation pay, while an independent contractor is responsible for their own benefits.

3. Termination: An employee can usually be terminated by the employer at any time, while an independent contractor may have a specific contract term or termination clause.

4. Nature of work: An independent contractor usually performs specialized work that is not part of the employer`s regular business, while an employee performs work that is integral to the employer`s business.

Conclusion

The 20-factor test is a useful tool for both employers and workers to determine whether a worker is considered an employee or an independent contractor. It is important to note that no single factor is determinative of whether a worker is an employee or an independent contractor. Instead, all of the factors must be considered in their totality to determine the worker`s status. Understanding the 20-factor test can help employers avoid misclassifying their workers and can help workers understand their rights and benefits under the law.