Employee
or
contractor.

The three categories

The IRS groups the evidence into three areas, and frames each as a question rather than a test:

• Behavioural control. “Does the company control or have the right to control what the worker does and how the worker does his or her job?”
• Financial control. “Are the business aspects of the worker’s job controlled by the payer?” This includes how the worker is paid, whether expenses are reimbursed, and who provides tools and supplies.
• Type of relationship. “Are there written contracts or employee type benefits” such as a pension, insurance or holiday pay? “Will the relationship continue and is the work performed a key aspect of the business?”

Note what is in the first one: the right to control, not merely control exercised. A business that could direct how the work is done, but chooses not to, has not escaped the question.

Why simple checklists get it wrong

Somewhere in every trade there is a rule of thumb: if they use their own tools, if they work for other people, if they invoice you, if there is a contract saying contractor. Each of those is a real piece of evidence and none of them settles anything, because the agency’s instruction is to look at “the entire relationship and consider the extent of the right to direct and control the worker”.

The contract point is the one that misleads most often. A written agreement describing somebody as an independent contractor is evidence about the type of relationship, one input among several. It is not a decision, and it does not become one by being signed.

The form that gets you an answer

If the relationship genuinely does not resolve, either the business or the worker can file Form SS-8 and ask the IRS to determine the status. It is the only route to certainty.

It is also slow: the agency says it “may take at least six months to receive a determination”. That makes it a tool for a relationship you expect to continue, or for settling a pattern you will repeat across several people, not something that helps with a decision you need to make this week.

What getting it wrong costs

If you treat someone as a contractor when they should be an employee, without a reasonable basis, the business can become liable for that worker’s employment taxes. Relief may be available if you had a reasonable basis and treated everyone in similar roles consistently. Classifying two people differently when they do substantially the same job can remove that protection.

This is also the one area in this category where the federal answer is not the only answer. Other agencies and other states apply their own tests for their own purposes, and they do not all match the IRS. A worker can be classified one way for federal tax and another way elsewhere, which is unsatisfying but is the actual position.

The honest summary

Most small businesses who are unsure about this are unsure for a good reason: the arrangement genuinely sits in the middle. Somebody who started as occasional help, became regular, uses your equipment, and now does something central to what the business sells has drifted across every one of the three categories without anyone deciding anything.

The useful move is to notice the drift. The three questions above are worth re-asking about any long-running arrangement, because the answers change over time while the paperwork stays where it was.