The IRS approach to assessing whether

your worker(s) is an employee or IC

breaks the 20-factor test into 3 areas:

1. Behavioral control. Includes factors such as instruction

and training, setting hours, requiring reports.

2. Financial control. Includes manner of payment and

who pays for any assistants or equipment, and other

business expenses.

3. Relationship of the parties. Includes the right to hire

and fire, number of clients the “IC” has, and the

IC’s availability.

Now the IRS has made this approach

official, issuing Training Materials for

IRS Examiners on Worker Classification.

(www.irs.gov, type “Training Materials,”

then click on the top link).

Best defense in an audit: Documentation.

• Use a written contract that lists the factors that make

the worker an IC.

• Have a file or other documentation showing that the

relationship is conducted according to the contract

and is not a disguised employer-employee relationship.

• Prepare for audits. Gather documents and any other

evidence the IRS will review to verify the relationship

and review them from the IRS’s perspective to ensure

they support the treatment of the worker.