Financial Control
The second category of evidence is Financial Control which is comprised of facts that illustrate who has financial control of the activities undertaken by the worker. Items the revenue officer will explore include significant investment, unreimbursed expenses, services available to the relevant market, method of payment, and the opportunity for profit or loss. The relevant question is whether the business has the right to direct and control the business-related means and details of the worker's performance. The question is not whether the worker is economically dependent on or independent of the business for which the services are performed.
Significant Investment
Evidence of a significant investment in a business continues to be evidence of the independent contractor status of a worker. However, the new materials state that a significant investment is not required for independent contractor status. Some types of businesses or lines of work do not require a substantial investment. Additionally, for those that do, the independent contractor may rent or lease equipment at fair rental value. The worker's relationship to the seller or lessor is irrelevant.
Business Expenses
The new materials direct revenue officers to focus on the unreimbursed expenses of a worker because both employees and independent contractors may have reimbursed expenses.
Services Available to the General Public
Generally, if a worker makes services available to the general public this is evidence of his or her independent contractor status. However, the new materials state that advertising or a visible business location is not the only type of evidence that establishes that a worker makes his or her services available to the general public. Evidence that a worker obtains jobs by word of mouth is acceptable. In these cases, revenue officers are instructed to consider the necessity and practicality of advertising given the particular facts of the case. Absence of this factor is a neutral fact.
Method of Payment
The Service's stance on methods of payment as each relates to the issue of worker classification has not fundamentally changed. Compensation by the hour, day, or week, continues to evidence employee status. Conversely, a flat fee, generally, is evidence of independent contractor status. However, the new materials recognize that some lines of business, such as law, pay independent contractors by the hour. Thus, revenue officers must consider evidence of common business practice within an industry as it relates to this factor. Additionally, flat fees constitute evidence of independent contractor status regardless of when payments are made (daily, weekly, etc.).
Realization of Profit and Loss
The final factor for consideration within this category is an analysis of the worker's ability to realize a profit or incur a loss. To make this determination the revenue officer is advised to consider the financial evidence previously discussed. Basically, if the worker is making decisions which affect his or her bottom line, the worker likely has the ability to realize a profit or incur a loss.
Bluestein & Muhlbauer, P.C.
333 International Drive
Williamsville, NY 14221
716.633.3200
