Employee Vs Independent Contractor 4 Tests To Determine An Employment Relationship

Matthew G. Bisanz, CC BY-SA 3.0 https://creativecommons.org/licenses/by-sa/3.0, via Wikimedia Commons

From Assurance Agency: Insurance Brokerage — “There are 4 common tests to determine an employment relationship.  Employers should be aware that state and local variations of these tests also apply to any given situation.  The recurring theme in all these tests is control, and in different ways, they all seek to determine the amount of control that an employer exerts over its workers.  

1.  The Common Law Agency Test

This test requires consideration of 13 different factors, also known as the Reid factors, which individually may not determine the character of the relationship, but as a whole allow for an understanding of how much control an employer exerts over a particular individual.

2.  The Economic Realities Test

This test evaluates the level of financial dependence that the worker has on an employer.  Generally, under the economic realities test, the more an individual depends on an employer, the more likely it is that the individual should be categorized as an employee

3.  The Hybrid Test

As the name suggests, this test combines elements from the common law agency and the economic realities tests.  The factors under this test consider special details in the relationship between an employer and a worker.

4.  The IRS 20-Point Test

Developed to determine the tax liability of employers and individuals, this test expands and classifies factors from the common law test into three categories: a sphere of behavioral control, a sphere of financial control, and the factors that determine the type of relationship that exists between parties.

Independent contractors and employees aren’t the same and it’s important for companies to understand the difference. Misclassifying these individuals has become an increasing issue of concern to governments, courts and regulatory agencies….”

Read the full story at Employee Vs Independent Contractor 4 Tests To Determine An Employment Relationship – Blog Post – 

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