IRS Guidance on Understanding Employee vs. Contractor Designation 

The IRS common law factors for determining worker status as addressed in Publication 15-A include the following:

• Behavioral: If the employer has the right to control when and where the work is done, the worker is probably an employee. The instructions given, including what tools or equipment to use, or what order or sequence to follow, are behavior control factors.

• Financial: The opportunity for the worker to either make a profit or suffer a loss is an important factor in determining classification. Independent contractors generally have a significant investment in the equipment used to do a job, advertise their services, maintain a visible location, and are available to work for other employers.

• Relationship: If the worker is hired with the expectation that the relationship will continue indefinitely, the worker is more than likely an employee. If the worker provides services that are key to the success of the business and his or her work is presented as that of the employer, the worker is more than likely an employee.

Factors such as having a signed agreement or the worker having an incorporated business are not sufficient in determining employee vs. independent contractor status.