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May 12, 2010
Internal Revenue Service Financial Control Test for Independent Contractors

Maria Anastas discusses the Internal Revenue Service (IRS) financial control independent contractor classification test in a BLR webinar entitled ‘Employee versus Independent Contractor: Where’s the Line? How to Make the Proper Call and Stay Out of Court’. She states that ‘financial control’ relates to facts that show whether the business has a right to control the business aspects of the worker's job. These facts include:

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  • The extent to which the worker has unreimbursed business expenses : Independent contractors are more likely to have unreimbursed expenses than are employees. Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. However, employees may also incur unreimbursed expenses in connection with the services that they perform with their business
  • The extent of the worker's investment : An independent contractor often has a significant investment in the facilities he or she uses in performing services for someone else. However, a significant investment is not necessary for independent contractor status
  • The extent to which the worker makes his or her services available to the relevant market: An independent contractor is generally free to seek out business opportunities. They often advertise, maintain a visible business location, and are available to work in the relevant market
  • How the business pays the worker : An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. An independent contractor is usually paid a flat fee for the job. However, it is common in some professions, such as law, to pay independent contractors hourly
  • The extent to which the worker can realize a profit or loss: An independent contractor can make a profit or loss

Maria Anastas is a partner in the San Francisco office of law firm Ogletree, Deakins, Nash, Smoak & Stewart, PC ( ). She represents employers in labor and employment law matters exclusively, with a primary emphasis on traditional labor matters. She can be reached at

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