Employees FAQ 9
What factors determine whether someone performing services on behalf of a city or village is a municipal employee or an independent contractor?
The answer to this question can be important because employers do not typically withhold federal and state taxes or social security for independent contractors and independent contractors do not usually receive benefits. Furthermore, a municipality's incorrect treatment of an employee as a independent contractor, without a reasonable basis, can result in substantial penalties being assessed against the municipality.
The Internal Revenue Service (IRS) uses 20 factors as guidelines to determine whether an individual is an employer or an independent contractor. No one factor is determinative. However, "yes" answers to the following factors indicate an employee relationship. "No" answers indicate independent contractor status.
- Must comply with the employer's instructions about when, where and how to work.
- Receives training from or at direction of the employer.
- Provides services that are integrated into the business.
- Performs the work personally.
- Hires, supervises and pays assistants for the employer.
- Has a continuing relationship with the employer (worker performs work on frequently recurring, although irregular, interval).
- Follows set hours of work.
- Works full-time for the employer.
- Performs work on the employer's premises.
- Must perform work in sequence set by employer.
- Submits regular oral or written reports to the employer.
- Receives payments of regular amounts at set intervals.
- Receives payments for business/traveling expenses.
- Relies on employer for tools and/or materials.
- Lacks a significant investment in facilities used to perform services.
- Cannot make a profit or suffer a loss from services.
- Works for one employer at a time.
- Does not offer services to the general public.
- Can be fired by the employer.
- May quit work at any time without liability.
In situations where a municipality is unsure whether someone should be treated as an employee or as an independent contractor, the municipality may request that the IRS make a determination. The municipality should call 1-800-TAX-FORM and request Form SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding, which is then filled out and submitted to the Internal Revenue Service.