Determining Employment Status: The Behavioral ComponentKelli Horne
January 17, 2012 — 2,248 views
The criteria for determining worker employment status as an independent contractor or an employee fall into three areas: 1) Financial, 2) Behavioral, and 3) Type of Relationship. We provided an explanation of the financial criteria in a previous blog, "Independent Contractor or Employee? Know the Rules!" Now we will examine the more complex behavioral criteria that must be evaluated when determining a worker's status as employee or independent contractor.
The behavioral component of employment classification asks the question: Does the company control or have the right to control what the worker does and how the worker does the job? When determining status, all data that provides evidence of the degree of control and independence must be examined. Businesses should weigh all factors. Some factors may indicate that the worker could be classified as an employee, while other factors might indicate that the worker is an independent contractor.
There is no "magic" formula that determines the worker's classification and no one factor makes this determination. Factors which are relevant in one situation may not be relevant in another. The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.
Worker behavioral control factors fall into several categories: 1) type of instructions given; 2) degree of instruction; 3) evaluation systems; and 4) training.
Type of Instructions Given
An employee is generally subject to business instructions about when, where, and how to work. All of the following are examples of types of instructions about how to do work: When and where to do the work; what tools or equipment to use; what workers to hire or to assist with the work; where to purchase supplies and services; what work to be performed
by a specified individual; and what order or sequence to follow when performing the work. Workers who make these decisions independently are more likely to be contractors.
Degree of Instruction
Degree of instruction refers to the level of detail in instructions. The more control the business exercises over the worker's instruction, the more likely that employee is the appropriate classification. Less detailed instructions reflect less control, indicating that the worker is more likely an independent contractor.
Keep in mind that the amount of instruction needed varies among different types of work. Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. A business may lack the information to instruct highly specialized professionals. In other situations, the work may require little instruction. The primary consideration is whether the business has given up the right to control the details of a worker's performance.
If an evaluation system measures the details of how the work is performed, and appropriate classification might be employee. If evaluation measures just the end result, it may indicate that a worker is an independent contractor.
If a company provides a worker with training on completing a job, it is an indicator that the business wants the job done in a particular way. This provides strong evidence that the worker is an employee. Periodic or on-going training about procedures provides even stronger evidence of an employer-employee relationship. Independent contractors ordinarily use their own methods.
It is critical that business owners correctly determine whether individuals should be classified as employees or independent contractors. The criteria for determining employment classification must be applied and analyzed for each situation and each worker. Properly classifying workers before beginning a relationship can save time, money and potential difficulties in the future.
Kelli Horne is a freelance writer working for Horizon Business Solutions. If you have questions or concerns about worker classifications or other business issues, contact Horizon today at www.horizonbiz.com.