The Profile of a Typical Independent Contractor/1099 Employee

Over the last few weeks I have received email messages and telephone calls from various friends and clients asking about who is and who is not eligible to be classified as an Independent Contractor/1099 employee. There is a lot of misunderstanding about this issue among many small business employers. Both the U.S. Department of Labor (DOL) as well as the IRS have developed a series of tests to help employers determine the correct answer. It can all be very confusing, so I have taken both sets of tests and developed my own listing of criteria which are listed below. Hopefully this will help to clear up some of the questions and confusion. In order for an individual to be legally classified as an Independent Contractor/1099 employee, the individual must be:

In business for him/herself and has/does the following:

A company’s best defense against the potential expense and aggravation related to federal or state law violations is to proactively review and revise as needed all Human Resources policies, handbooks, hiring procedures, compensation, benefits, training programs, communications tools and other functions. The professionals of PHHR are ready to assist your organization with this type of training as well as to maintain compliance with the latest state and federal mandates.

In business for him/herself and has/does the following:

1. The individual has business cards, marketing materials, and website/Facebook/LinkedIn.
2. Needs no instruction on how, when or where to do the work.
3. Can hire assistants to do the work if needed.
4. Is incorporated; has city/county business licenses.
5. Pays own business taxes, furnishing, travel and equipment expenses.
6. Membership in business/community organizations.
7. Has Liability Insurance.
8. Has an established office with needed tools/materials/supplies/computer.
9. Makes services available to the general market and works for a variety of businesses and organizations. The contractor/client relationship ends when the contracted job is finished
10. Submits contracts which detail the work to be accomplished along with time lines for completion.
11. Is only paid when the contract is completed. (Payment by the hour indicates an employee/employer relationship.)
12. Works at his/her desired time and location using his/her own methods and materials. He/she never clocks in/out for an employer.
13. Has the very real possibility of making a profit or incurring a loss for all work performed. Success or failure depends on the relationship of receipts to expenses. Jobs are contracted for and prices agreed to in advance with no guarantee of success.
14. Has a real and significant investment in tools, equipment, supplies, computers, etc in order to run the company.

Anything short of this is an EMPLOYEE.

A company’s best defense against the potential expense and aggravation related to federal or state law violations is to proactively review and revise as needed all Human Resources policies, handbooks, hiring procedures, compensation, benefits, training programs, communications tools and other functions. The professionals of PHHR are ready to assist your organization with this type of training as well as to maintain compliance with the latest state and federal mandates.

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Paul Hilton is a certified Human Resources Consultant, located in Columbia, SC.
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