Employee vs. Independent Contractor: A Game of 20 Questions - Page 6


© Christina Morfeld
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18.       Does the individual make his or her services available to the general public?

ICs publicize their services to a wide range of potential clients via direct mail, advertising, etc.

Employees do not typically position and market themselves as service providers.

19.       Can the individual terminate the relationship without liability?

Employees can quit at any time and can typically be released "at will" by their employers.

ICs are legally obligated to complete projects according to contract provisions and can only be dismissed if they fail to do so.

20.       Do you have the right to discharge the individual at any time?

To streamline this analysis, the Internal Revenue Service recently used these factors to develop what is known as the three "categories of evidence" - behavioral, financial, and type of relationship. While intended to assist workers in determining their own appropriate classification, employers may find IRS Publication 1779 to be a useful reference in understanding these criteria. Publication 15-A is also quite valuable, especially in that it provides scenarios from a variety of industries.

But what if you're only reading this article because of an impending IRS audit? Based on the information presented above, you now believe that your workers are misclassified, but it's too late to change their status now. Is there any chance of avoiding the harsh consequences?

Believe it or not, the answer is yes. Your business may qualify for an IRS Section 530 "safe harbor" exception if you can substantiate all three of the following relief requirements:

       

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