Check Yourself Before You Wreck Yourself: Independent Contractor Checklist.

Ready to start hiring or preparing for the day you can? Beware of one of the most common startup failures: misclassifying an employee as an independent contractor. This small hiccup can cost you A LOT in the long term. It is NOT worth the risk. One of the most exciting aspects of starting your company is hiring a kickass team. Make sure you do it right and follow the law.

This checklist is crafted based on the IRS Independent Contractor and Federal Labor Standards Act (Department of Labor) tests that courts will employ to determine whether someone is an employee or an independent contractor based on the right to control through behavior, finances, and the overall relationship between the parties.

Behavioral Control

• Does the worker have the right to control the manner, with very little instruction or supervision, as to: when, where, and how the work is performed?
  • Is the worker evaluated by end result of work not on how the work was performed?
    • If yes to both, by behavioral standards it is very likely the worker is an independent contractor.
• Does the company provide detailed instructions and evaluations to the worker regarding the when, where, and how the work is performed?
  • If yes, by behavioral standards it is very likely the worker is an employee.
• Did or will the worker receive training from the company?
  • If no, independent contractor attribute.
  • If yes, employee attribute.

Financial Control

• Does the worker make a significant investment in the tools and equipment she uses to perform the work? For example, purchasing the laptop and computer software required to complete the project.
  • If yes, independent contractor attribute.
  • If no, employee attribute.
• Does the company reimburse the worker for expenses?
  • If no, independent contractor attribute.
  • If yes, employee attribute.
• Does the worker run the risk of both profit and loss?
  • If yes, independent contractor attribute.
  • If no, employee attribute.
• Does the worker have the right to provide services available to the market, for multiple clients at the same time?
  • If yes, independent contractor attribute.
  • If no, employee attribute.
• Is the worker paid a flat fee for her work?
  • If yes, independent contractor attribute.
  • If no, does the company pay a generally guaranteed wage for the period of time the employment relationship continues?
    • If yes, employee attribute.

The Relationship Between the Parties

• Is there a written contract addressing the relationship type? A contract may evidence the parties intent, although it is not dispositive.
• Does the worker receive employee benefits like retirement savings, health care, and other benefits a company provides to its employees?
  • If yes, employee attribute.
  • If no, independent contractor attribute.
• Is the worker contracted for a specific period or project and cannot be discharged except under the terms of their contractor?
  • If yes, independent contractor attribute.
• Is the worker engaged for indefinite periods of time and can be discharged for any or no reason without notice?
  • If yes, employee attribute.
• Are the services that the worker provides a key aspect of the business?
  • If yes, employee attribute.
  • If no, independent contractor attribute.

Want to understand more about independent contractor versus employee relationships and how the tests apply? Read our blog post on employee misclassifications.