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Independent Contractor or Employee?

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Independent Contractor or Employee?
1.Do you feel that Karen is an independent contractor or an employee? What is your rationale for this decision?

The differentiation between an independent contractor and an employee is a critical one for any employer to make. Furthermore, this choice can have significant implications for the business regarding additional fees and taxes. In this situation, Karen was initially hired as a temporary employee. Moreover, Karen has functioned as an independent contractor for 5 years. If one were to look at her employment status, they would see that Karen has additional clients outside of the local utility as well as the fact that she has not received benefits or proper tax documentation for this period time. For these reasons, Karen should be classified as an independent contractor for the local utility.

2.What factors do you feel help contribute to Karen being an employee?

The IRS generally makes this determination. The IRS uses three characteristics to determine the relationship between businesses and workers, including the concept of behavioral control that covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means. In addition, financial control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job. Lastly, the type of relationship factor relates to how the workers and the business owner perceive their relationship. If Kerry were to be classified as an employee, her actions should fall under the purview of her employer. In other words, if her employer has the right to control or direct the way her job is done, she is most likely an employee (IRS, 2011)
3.What factors favor her being a contractor?

Kerry may be considered an independent contractor if the services she performs cannot be controlled by her employer (what will be done and how it will be done). This applies even if she is given



References: IRS (2011) Employee vs. Independent Contractor – Seven Tips for Business Owners. http://www.irs.gov/newsroom/article/0,,id=173423,00.html Last accessed January 3, 2012.

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