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.
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