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3 questions to ask when deciding who is an employee

It's not always obvious if a worker is technically an employee of a company or if the worker is an independent contractor. However, it is important to make this distinction for tax purposes and to define workers' rights, payment structures and the like.

Below are three questions that can help you determine if someone is a contractor or employee.

1. Who controls the financial side of the relationship? For instance, does the employer get reimbursement for expenses, how are payments sent out and who provides the supplies and tools that the worker needs for the job?

2. What behavioral control does the company have? Can a supervisor tell the employee when and how to work? Or does the employee have freedom to work whenever he or she desires?

3. What type of business relationship exists and what does this entail? For example, does the company pay the worker for vacation time and offer benefits, or not? Did the two sign a written contract to work with one another? How long does the relationship between the two parties last?

The lines do get a bit blurry in the modern era, with more workers qualifying as independent contractors and the Internet making it possible for companies to find these workers all over the world. These questions, though, can get things started and headed in the right direction when trying to determine how someone should be categorized.

No matter how that discussion plays out, it's very important for workers to know all of their legal rights. These can be significantly impacted by the classification that a worker is given, so this process shouldn't be taken lightly.

Source: Internal Revenue Service, "Independent Contractor (Self-Employed) or Employee?," accessed Jan. 24, 2018

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