By Robert S. Schriebman
Both the IRS and many states usually define the term "employee" under various common law rules. There are about 20 different criteria, and they will be explained briefly in a follow up to this article. Under the common law rule approach to the issue of employee versus independent contractor, the most important factor is the right of the principal to control the manner and means of accomplishing a desired result. If the principal employer has the right to control the manner and means of accomplishing the desired result, whether or not that right is actually exercised, an employer-employee relationship exists.
The term "employee" is broadly defined. It includes most persons in the service of an employer under any contract of hire, written or oral, and includes persons working for a salary or wages. These laws generally assume that any person rendering service for another is an employee unless the person is an independent contractor.
An independent contractor is someone who renders service for a fixed payment for a specified result, under the control of another only as to the result of work, and not as to the means by which the result is accomplished. Thus, whether an individual is an "independent contractor" or an "employee" often depends on the extent of control exercised over work. Some relevant factors that go to the establishment of an employer-independent contractor relationship include the following:
1. Whether the individual is engaged in an independent, licensed business or distinct occupation requiring a special skill, with an opportunity for profit or loss;
2. Whether the individual has invested in tools and equipment necessary to perform the work;
3. Whether the individual employs helpers or other employees;
4. Whether the individual does not have regular or semi-permanent working relationship with the person or company that the individual is working for; and
5. Whether the individual is performing a different kind of service than the person or company that the individual is working for.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See "California Tax Collection Practice and Procedures" and "California Taxation Practice and Procedure", both published by Commerce Clearing House.