The IRS will review many factors in order to determine whether a worker is an independent contractor or an employee. Some of the factors include (1) behavioral control; (2) financial control; and (3) the relationship of parties.
In each case, it is very important to consider all of the factors regarding an employment relationship.
The factors listed above will show whether there is a right to direct or control how a worker performs their required work. A worker that may be considered an employee when a dental practice has the right to direct and control the worker. The practice does not have to actually direct or control the way the work is performed, as long as the employer has the right to direct and control the work.
Instructions – if a worker receives extensive instructions on how such work should be performed, then this suggests that a worker is an employee. Instructions can cover a wide range of topics, such as (1) how, when, or where to do the work; (2) what instruments or equipment to use; (3) what assistants to hire to help with the work; and (4) where to purchase supplies and services.
If a worker receives less extensive instructions about what should be done, but not how it should be done, they may be considered an independent contractor. For instance, instructions about time and place may be less important than directions on how the work should be performed.
Training – if the practice provides a worker with training about required procedures and methods, this indicates that the practice wants the work to be performed a certain way, and this suggests that a worker may be considered an employee.
The factors below show whether there is a right to direct or control the business side of the practice.
Significant Investment – if a worker has a significant investment in their work, they may be an independent contractor. While there is no precise dollar test, the investment must have substance. However, a significant investment is not necessary to be considered an independent contractor.
Expenses – if a worker is not reimbursed for some or all of their business expenses, then they may be considered an independent contractor. Especially, if their unreimbursed business expenses are high.
Opportunity for Profit or Loss – if a worker can realize a profit or incur a loss, this suggests that they may be in business for themselves, and that they may be considered an independent contractor.
Relationship of the Parties
The facts below illustrate how the practice and a worker may perceive their relationship.
Employee Benefits – if a worker receives benefits, such as insurance, pension, or paid leave, this is an indication that they may be an employee. If a worker does not receive benefits, however, they may be either an employee or an independent contractor.
Written Contracts – a written contract may show the actual intention of the worker and practice. This may be very significant if it is difficult, if not impossible, to determine the status of a particular worker based on other facts.