The IRS looks at some Common Law Rules to determine if a individual is an employee or independent contractor. Either party can file a form, the number slips my mind, to get a ruling on the status , takes about 6 months.
Facts that provide evidence of the degree of control and independence fall into three categories:
Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
Financial: How is the individual paid? Who provides tools or uniforms etc?
Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? is there a set time frame for the work, is it ongoing? Is the work integral to the business as a whole?
Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.
The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination or submit findings to the IRS for a ruling ... SS-8 ( it came to me )