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Determining Who is an Independent Contractor

Hiring independent contractors can be a useful way for businesses to complete projects at a lower cost than hiring full-time employees. Many people also prefer the freedom that comes with working as an independent contractor. Often, independent contractors can work from home and make more money on an hourly basis, with the downside of having to pay higher employment taxes. However, problems arise when independent contractors take legal action against businesses to dispute their status and claim they're entitled to the same wages and benefits as full-time employees. 

Differing Definitions of Independent Contractors

When someone disputes their status as an independent contractor, it can raise several different legal issues at the state and federal level. The IRS formerly used an extensive 20-point test to analyze whether someone qualifies as an independent contractor. the IRS developed its 20-Factor Test to assist employers in determining classification. While no one factor is more indicative of status than another, a high number of "yes" answers could indicate an employment relationship.

IRS 20-Factors Ask Yourself Circle
  1. Instructions
Is the worker required to comply with employer's instructions about when, where, and how to work? YES NO
  1. Training
Is training required? Does the worker receive training from or at the direction of the employer, includes attending meetings and working with experienced employees? YES NO
  1. Integration
Are the worker's services integrated with activities of the company? Does the success of the employer's business significantly depend upon the performance of services that the worker provides? YES NO
  1. Services Rendered Personally
Is the worker required to perform the work personally? YES NO
  1. Authority to hire, supervise and pay assistants
Does the worker have the ability to hire, supervise and pay assistants for the employer? YES NO
  1. Continuing Relationship
Does the worker have a continuing relationship with the employer? YES NO
  1. Set Hours of Work
Is the worker required to follow set hours of work? YES NO
  1. Full-time Work Required
Does the worker work full-time for the employer? YES NO
  1. Place of Work
Does the worker perform work on the employer's premises and use the company's office equipment? YES NO
10. Sequence of Work Does the worker perform work in a sequence set by the employer? Does the worker follow a set schedule? YES NO
11. Reporting Obligations Does the worker submit regular written or oral reports to the employer? YES NO
12. Method of Payment How does the worker receive payments? Are there payments of regular amounts at set intervals? YES NO
13. Payment of Business and Travel Expenses Does the worker receive payment for business and travel expenses? YES NO
14. Furnishing of tools and materials Does the worker rely on the employer for tools and materials? YES NO
15. Investment Has the worker made an investment in the facilities or equipment used to perform services? YES NO
16. Risk of Loss Is the payment made to the worker on a fixed basis regardless of profitability or loss? YES NO
17. Working for more than one company at a time Does the worker only work for one employer at a time? YES NO
18. Availability of services to the general public Are the services offered to the employer unavailable to the general public? YES NO
19. Right to discharge Can the worker be fired by the employer? YES NO
20. Right to quit Can the worker quit work at any time without liability? YES NO

Further complicating issues is that each state has different rules for determining who is an independent contractor, so if you're dealing with someone who lives and works remotely from another state, they may be an employee under that state's laws, even if you've complied with Oklahoma law. Because of these issues, it's important to consult with an employment attorney before hiring independent contractors.

Looking For An Employment Defense Attorney?

A lawsuit from an independent contractor claiming to be an employee can be lengthy and complicated cases, and the having to pay back wages in the case of an adverse judgment can get expensive Frasier, Frasier & Hickman can help. We've spent years defending businesses in employment cases. To schedule a consultation about your case, contact our Tulsa offices today, 918-779-3658.

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