While the vast majority of people dutifully report to work Monday through Friday for an eight-hour workday, there is a growing segment of workers who eschew this traditional arrangement in favor of work through the so-called gig economy. This, of course, means they prefer to hold different jobs in different fields for different periods of time.
As freeing as this move away from traditional 9-5 settings undoubtedly is, it’s not without its challenges. Indeed, as we’ve discussed in a series of posts, those people making their way via the gig economy — a popular route for many millennials — may have questions about whether they are properly considered an employee or an independent contractor for federal tax purposes.
In today’s post, we’ll conclude our discussion by examining the remaining two categories courts examine when attempting to determine whether a person is a contractor or an employee.
Relationship of the parties
Here, a court will look at any evidence establishing how exactly the person and the entity for which they work perceive their relationship.
For instance, the court would look to the provision of benefits — paid leave, retirement pay, insurance, etc. — as this is typically indicative of an employer-employee relationship. (It should be noted, however, that the absence of benefits does not mean that a person is likely an independent contractor)
Another factor the courts will look for is the existence of a written contract, which would more than likely set forth each side’s expectations concerning the arrangement in fairly clear terms.
When it comes to financial control, a court will examine the existence of the ability to control or direct the business aspect of the work being performed.
In making this determination, the court will look at any of the following:
- Are you reimbursed for expenses? If the answer is no, this tends to indicate status as an independent contractor.
- Is there an opportunity for loss or profit? If the answer is yes, this tends to indicate status as an independent contractor.
- Is there a significant investment in the work? If the answer is yes, this tends to indicate status as an independent contractor.
If you have questions regarding your status as an independent contractor or employee, or other federal tax concerns, consider speaking with an experienced legal professional.