How to Tell If You Are a Contract Employee

The IRS determines employee or independent contractor status.

A contract employee is a temporary employee, otherwise known as a "temp." Most contract employees work for a "temp agency," or temporary employment agency. Occasionally a person is called a contract employee if he is an employee of a company for a specified period of time. In that situation, the word "contract" refers to the contracted period of time for which that person is expected to work for the company. Sometimes the term is incorrectly used to describe an independent contractor; in other words, a worker who is not an employee of either the company or a temp agency. An independent contractor works for herself and pays her own withholding taxes, such as Social Security, state taxes and Medicare.

Instructions

1. If a worker's status is in question, the Internal Revenue Service examines three factors to determine whether a person providing services is an employee or an independent contractor: behavioral, financial and type of relationship. First, does the company control how the worker does his job? Second, does the company control how the worker is paid and whether he is reimbursed for expenses? And finally, are there benefits such as health insurance and a pension plan, and is the work relationship expected to continue? Ask yourself these questions to determine whether you are being treated as an employee or as an independent contractor. In addition, the IRS considers 20 common-law factors to aid in this determination (see Resources).

2. If you work for a temp agency, you are a contract employee of that agency. Examples of temporary employment agencies are Kelly Services, Manpower, Apple One and Westaff. Today's temp agencies employ not only secretaries, administrative assistants and other office workers but also construction laborers and workers in manufacturing industries.

3. If you do not work for a temp agency, ask the human resources department where you work if you are considered a company employee or an independent contractor. If you're still not sure, see Step 4.

4. Look at your pay stub to see if money was withheld for categories such as Social Security, state taxes and Medicare, which would indicate that you are an employee. If you are paid just with a check and no pay stub, or only in cash, it is likely that the person or company you work for considers you an independent contractor.

5. Check to see if you received a 1099 or a W-2 for tax purposes. If you earned at least $600 in a calendar year and received a 1099 form, you are an independent contractor. If you received a W-2 form that shows the withholding categories (Social Security, state taxes, etc.) and amounts were withheld, you are an employee.

6. Consider consulting a labor attorney if you are still unclear about your situation. Either an employer or the worker himself may file IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, to determine whether the worker is an employee or independent contractor.

References

• IRS: Independent Contractor or Employee?

Resources

• The Independent Contractor Report: Twenty Common-Law Factors
• IRS: Form SS-8
• Contract Employee's Handbook