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IRS Independent Contractor Definition – A Good Starting Point

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IRS Independent Contractor Definition Useful Determination Info

Employers face a daunting question when they use independent contractors. When I was writing the previous article on the Top Five Questions we receive relating to workers’ compensation and taxation, I noticed new updates to the IRS Independent Contractor definition including answering the independent contractor/employee determination question.  The IRS advice comes from a federal angle.  Your individual state’s workers’ compensation system may have rules/regulations that could possibly vary somewhat.

This website has covered this subject many times in the past.  We usually hear from employers the most on this subject – usually with a pending premium audit or one that was just performed by the premium auditor.

While reviewing the info to write this article, I discovered the IRS independent contractor definition pages were updated last week. 

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An excerpt from that page –

…whether these people are independent contractors or employees depends on the facts in each case.

The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.

You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.

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The IRS Independent Contractor Definition is covered in Publication 15-A‘s main contents under #1. If inaccurate employee classifications exist at a business, the tax penalties including FICA can be very severe.

One place to delineate between the employee/independent contractor designation would be in the independent contractor agreement that was signed between you and the contractor.  Googling independent contractor contracts will bring up hundreds of choices.

The standard IRS independent contractor definition concerns are covered in these blank contracts including the “control of work” question.

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications

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