When an employee pays an independent contractor for services performed, the employer does not withhold FICA, nor is liable for the employer's share of FICA, or FUTA. The temptation is to treat all workers as independent contractors rather than employees."

However the IRS is very aggressive in reclassifying workers as employees. When this happens, the employer can be held liable for all taxes that should have been withheld, the employer's share of FICA, FUTA, possible state income and unemployment taxes, along with penalties and interest. The employer cannot recover the assessed tax from the worker. [IRC 3509 (d)(1)(B) and 3102(b)]"

Common-Law Rules [Rev. Rul. 87-41]"

A “yes” answer to any of the following questions (except #16) may convince an IRS authority that a worker is an employee."

1. "Is the worker required to comply with instructions about when, where and how the work is done."
2. "Is the worker provided training that would enable him/her to perform a job in a particular method or manner?"
3. "Are the services provided by the worker an integral part of the business' operations?"
4. "Must the services be rendered personally?"
5. "Does the business hire, supervise, or pay assistants to help the worker on the job?"
6. "Is there a continuing relationship between the worker and the person for whom the services are performed?"
7. "Does the recipient of the services set the work schedules?"
8. "Is the worker required to devote his/her full time to the person he/she performs services for?"
9. "Is the work performed at the place of business of the company, or at specific places set by the company?"
10. "Does the recipient of the services direct the sequences in which the work must be done?"
11. "Are regular oral or written reports required to be submitted by the worker?"
12. "Is the method of payment hourly, weekly, or monthly (as opposed to commission or by the job)?"
13. "Are businesses and/or traveling expenses reimbursed?"
14. "Does the company furnish tools and materials used by the worker?"
15. "Has the worker failed to invest in equipment or facilities used to provide the services?"
16. "Does the arrangement put the person in the position of realizing either a profit or a loss on the work?"
17. "Does the worker perform services exclusively for the company rather than working for a number of companies at the same time?"
18. "Does the worker in the fact not make his services regularly available to the general public?"
19. "Is the worker subject to dismissal for reasons other than nonperformance of contract specifications?"
20. "Can the worker terminate his/her relationship without incurring a liability for failure to complete the job?"

Note: The right to control the worker is the key element that determines employee status. [Reg. 31.3401(c)-1 and 31.340(d)-1] "

Occupational Groups"

Employees Defined By Law"

• Corporate officer. [IRC 3121 (d)(1)]"" A corporate officer is generally an employee. An officer is an employee even if he/she is the sole shareholder and has control of his/her own duties and remuneration.""" A corporate officer who performs only miner services or no services is not an employee if no payment is received nor is entitled to be received, directly or indirectly."

• * Common-Law Employee. [IRC 3121(d)(2)]" See Rev. Rul. 87-41 - Common-law employee status is determined by applying the 20 common-law factors to each" individual case to verify if an employer relationship exists. If the person for whom the worker performs services has the legal right to control and direct the worker, such as relationship exists"

• Statutory Employee. [IRC 3121 (d)(3)]
  The code lists four occupational groups that are not employees under the Common-Law Rules, but are employees under the Statutory Rules and for FICA tax purposes.
  1.    Agent Drivers or Commission Drivers:
  Limited to workers who distribute meat, vegetables, fruit, bakery, beverage (other than milk) products; or laundry/dry-cleaning services.
  2.    Full-Time Life Insurance Salesperson:"
  (One Company)
  Work at home for one employer making clothing, needlecrafts, bedspreads, buttons, quilts, gloves, etc.
  4.    Traveling or City Salesperson:
  Sells for one principal employer"

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