TN 4 (01-10)

Citations: Act as amended through 1980 - Sec. 210 (j)(2) [42 U.S.C. § 410(j)]; 20 C.F.R. § 404.1007

A. Definition

Common law control test

Common law rules are used to establish the status of a worker (e.g., employee, contractor or self-employed) by determining whether a relationship exists between the worker and the person receiving the services. Facts and circumstances of individual cases are examined to determine the degree of control the employer has over the worker. The courts identified various factors that can be used to determine if an employment relationship exists. These factors, described in detail, are located throughout RS 02101.000 and Internal Revenue Ruling 87-41, see link under “Resources” in RS 02101.020D in this section.

B. Worker is classified as an employee

Consider an individual an employee if his or her relationship with the person receiving the services meets the common-law control test. Under this test, the individual is subject to control by the person receiving the services as to when, where and how the work is done. The control does not need to be exercised for an employer-employee relationship to exist; the right to exert such control is enough. In borderline cases, a determination as to whether an individual is subject to the right of sufficient direction and control by the person for whom the services are performed is often a difficult one to make. The relationship of the business and the worker must be examined. The three categories of evidence and key facts that demonstrate the right to direct and control are:

1. Behavioral control

The following are examples of behavioral control:

• Worker receives instructions from the business

• Worker receives training from the business

2. Financial control

The following are examples of financial control:

• Method of payment-worker receives an hourly wage or salary rather than a lump sum payment for a particular task

• Worker does not have the opportunity for profit or loss

• Worker does not make its services available to the relevant market

• Worker does not make significant investments

• Worker does not have unreimbursed expenses

3. Relationship of the parties

Examples of relationships between a business and a worker:

• Discharge/termination-either business or worker can end the relationship before the job is completed

• Employee benefits (beyond monetary compensation)

• Intent of parties/written contracts that indicate both parties believe they are in an employer-employee relationship

• Worker’s services are a part of business’s regular business activity

C. Worker is not classified as an employee

If a worker does not meet the qualifications of an employee under the common-law control test, he or she most likely will be considered a contractor (self-employed). Under IRS statute, workers in the following three occupations are not employees if they meet certain qualifications:

• companion sitters;

• direct sellers; and

• real estate agents

Section 3506 and 3508 of the Internal Revenue Code provide that these workers are statutory non-employees.

D. References

• Internal Revenue Ruling 87-41

• IRS Publication 15-A, Employer’s Supplemental Tax Guide

• Social Security Handbook, Section 802, The Common Law Control Test