IRS 20 Determination Factors and Limitations/Restrictions
IRS 20 Determination Factors
- Employees comply with their employer's instructions about when, where, and how to work, or the employer has the right to control how a worker's results are achieved.
- Independent contractors have more flexibility.
- Employees may receive training from their employers to perform services in a particular manner.
- Independent contractors usually use their own work methods and receive no training from those purchasing their services.
Services Rendered Personally:
- Employees' services are usually integrated into the business's operations because they are key to the success or the continuation of the business.
- Independent contractors are independent of the business's operation.
- Employees render services personally.
- Independent contractors render services as contractors.
- Employees work for an employer.
- Independent contractors can hire, supervise and pay assistants under a contract that requires them to provide materials and labor and to be responsible for the results.
Set Hours of Work:
- Employees generally have ongoing relationships with their employers.
- Independent contractors' relationships will usually be more sporadic.
- Employers usually set their employees' work hours.
- Independent /contractors usually set their own hours.
Work Done on Premises:
- Employees may be required to work or to be available full-time.
- Independent contractors may work when and for whom they choose.
Order or Sequence Set:
- Employees usually work on their employers' premises or on a route or at a location approved by their employers.
- Independent contractors may work away from the employers' premises when it could be done at the employers' premises.
- Employees may be required to perform services in the order or sequence set by their employers.
- Independent contractors can establish their own sequence.
- Employees may be required to submit reports to their employers.
- Independent contractors are not required to submit reports to their clients.
(However, reports related only to the end result are not an indication of employment or independence.)
- Employees are paid by the hour, week, or month.
- Independent contractors are usually paid by the job or through a commission.
Tools and Materials:
- The business and travel expenses of employees are generally paid by their employers.
- Independent contractors are responsible for paying their own expenses.
- Employers normally furnish their employees with the key tools, materials, and other materials they need to do their jobs.
- Independent contractors normally furnish their own tools and materials.
Profit and Loss:
- Employees normally do not invest in the facilities (generally, equipment and premises).
- Independent contractors have a significant investment in the facilities they use to perform services for someone else.
Works for More Than One Person or Firm:
- Employees do not experience a profit or loss.
- Independent contractors can experience a profit or loss.
Offer Services to the General Public:
- Employees usually work for one firm at a time.
- Independent contractors may work for multiple persons or firms at the same time.
Right to Fire:
- Employees usually work for one employer.
- Independent contractors make their services available to whomever they want.
Right to Quit:
- Employees can be fired by their employers.
- Independent contractors cannot be fired as long as they produce a result that meets the specifications of their contract.
- Employees have the right to quit a job any time without incurring liability.
- Independent contractors usually agree to carry out specific tasks or series of tasks and are responsible for completing those tasks satisfactorily, or are legally obligated to make good for failing to do so.
*The resource for the present version of the above 20 factors is © 1994 by John Ventura, and is excerpted from "The Small Business Survival Kit" published by Dearborn Financial Publishing Inc., Chicago, IL.
Contracts for personal services must be processed in accordance with the Purchasing Delegation Guideline and Signature Authority Guideline.
Foreign National Residency Status – for Employment and Tax/Reporting Purposes
If the independent contractor (individual or company) is a nonresident alien (NRA), or if the department is unsure of the residency status of the independent contractor, contact the university’s Tax Specialist PRIOR to retaining services. The Tax Specialist MUST verify residency status and/or Visa status prior to a department making a commitment to retain the independent contractor. Failure to do so may result in the university being unable to enter in to the agreement. Requesting department may also be subject to tax liability.
State/CSU Contract Restrictions – for CSU Current and Former Employees
It is the university’s practice not to contract with any university employee. This is supported by Technical Letter HR 2003-21 (Senate Bill 41).
Purchasing/Risk Guidelines for Independent Contractors
Independent Contractor services must be reviewed by the university Risk Manager for proper insurance coverage as specified in the Guidelines for Independent Contractor Review by Procurement Department.