Whether a worker is an “employee” or an “independent contractor” is critical when it comes to such important issues as pension eligibility, workers' compensation coverage, wage and hour law, and many other matters. In some situations, federal law will govern, but the question is most often resolved by looking to state law, particularly in areas such as unemployment tax liability, workers' compensation, and state wage and hour requirements.
Use the following two tests to help determine a worker’s status. There is one test specifically for electrical and construction contractors and one for all other industries. If a worker passes one of the following tests, he or she is an independent contractor.
Electrical and construction industries: Service performed for compensation by an individual in the electrical or construction industries is employment unless it is shown that:
1. The individual is free from direction and control over the performance of the service.
The service is performed:
a. Outside of the usual course of business for which the service is performed, or
b. Outside of all the places of business of the enterprise for which the service is performed. or
2. The individual has a principal place of business and is responsible for the costs.
3. The individual:
a. Is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service contract; or
b. Has a principal place of business that is eligible for a federal income tax business deduction.
4. On the effective date of the contract of service, the individual is responsible for filing a schedule of expenses with the Internal Revenue ...