• Category One: Behavioral Control
• Category Two: Financial Control
• Category Three: Relationship of the Parties

This guidance is generally broader and less specific than the 20-factor test. Even though the IRS stresses the new methodology, a medical practice or healthcare entity is advised to consider all factors that might indicate its control of how work is performed. For this reason, all factors have been provided and their current status indicated by footnote.

CATEGORY ONE: DEGREE OF BEHAVIORAL CONTROL

  1.         Instructions. If the payor has the legal right (whether used or not) to mandate when, where, or with what tools, personnel, and methods the work is done, the payor has an employer’s right to control how the work results are achieved.     

    2.         Training. Through training, the payor controls how the work should be performed, which is more common to an employer-employee relationship.

  3.         Specifying the Worker. Payors can exercise control by selecting only workers who use approved methods, which is more common to an employer-employee relationship.

  4.         Available to the Public. A separate economic entity will present itself as such to the public, which is more common to an independent contractor relationship.

  5.         Employing Assistants. If the worker hires, supervises, and pays assistants, these activities imply an economic entity that is separate from the payor, which is more common to an independent contractor relationship.

  6.         Sequence of Work. Specifying the sequence of the work is an integral part of how work is to be performed, which is more common to an employer-employee relationship.

  7.         Reporting. Required reporting by the worker implies that the payor has the right to exercise control over how the work is performed, which is more common to an employer-employee relationship.

  8.         Hours of Work. Specifying precisely when the work can be performed is an integral part of how the work should be performed, which is more common to an employer-employee relationship.

  9.         Full-time Effort. Full-time workers usually are economically dependent upon the payor. Workers who are economically dependent upon the payor are generally employees.

  10.        Job Location. Specifying where the work can be performed is an integral part of how the work should be performed, which is more common to an employer-employee relationship.

CATEGORY TWO: DEGREE OF FINANCIAL CONTROL

  11.        Reimbursements. To control reimbursed expenses, payors will exercise control over methods used, which is more common to an employer-employee relationship. Independent contractors are more likely to have unreimbursed expenses than employees. Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important in determining who controls the business aspects of the worker’s job.

       12.        Substantial Investment. A substantial investment by the worker implies a separate economic entity, which is more common to an independent contractor relationship. A significant investment is not a prerequisite for an independent contractor, however.

       13.        Outside Work. A separate economic entity can give equal priority to work for other parties, which is more common to an independent contractor relationship.

       14.        Fixed Pay. Employees sell labor (measured by time), while independent contractors sell a product or service (measured by results) and are usually paid by the job.

15.          Risk of Loss. The opportunity for financial loss or gain implies a separate economic entity controlled by an active management, which is more common to an independent contractor relationship.

16.          Tools and Supplies. An independent business will possess the necessary tools and equipment. Payors can exercise control over workers (employees) methods used through the selection of the tools and supplies and the supervision of their use.

CATEGORY THREE: RELATIONSHIP OF THE PARTIES

       17.        Termination. Payor-independent contractor relations are contractual; employer-employee relations are under common law. Written contracts describe the relationship the parties intended to create.

       18.        Quit. Payor-independent contractor relations are contractual; employer-employee relations are under common law.

       19.        Employee Benefits. If worker receives benefits given to employees (such as insurance, a pension plan, vacation, or sick pay), worker could be an employee.

       20.        Continuing Relationship. Long-standing and continuous workers are more likely to be economically dependent upon the payor. Workers who are economically dependent upon the payor are generally employees.

       21.        Integration. A practice will control and direct how its ordinary and necessary activities are performed (particularly if the worker provides services that are a key aspect of the practice’s regular business activities), which is more common to an employer-employee relationship.

22.                     Intent of Parties. Demonstration of the parties’ mutual intent for the worker to be an independent contractor weighs toward independent contractor treatment.

Misclassification Risks

If a practice incorrectly treats an independent contractor like an employee, the practice will unnecessarily pay FICA and FUTA taxes and collect FIT withholding. However, the practice will create no employment tax risks.

If the practice treats an employee like an independent contractor, the practice: