How to Determine Independent Contractor Status under the New Employment Standard Effective 01/01/2013

Step 1:  Is the individual free from direction or control of the employing unit?

No:  Stop.  The individual is an employee, not an independent contractor.
Yes: Move to step 2.

Step 2:   Does the individual have the essential right to control the means and progress of the work except as to final results?

No:  Stop.  The individual is an employee, not an independent contractor.
Yes: Move to step 3.

Step 3:  Is the individual customarily engaged in an independently established trade, occupation, profession or business?

No:  Stop.  The individual is an employee, not an independent contractor.
Yes: Move to step 4.

Step 4:  Does the individual have the opportunity for profit and loss as a result of the services being performed for the other individual/entity?

No:  Stop.  The individual is an employee, not an independent contractor.
Yes: Move to step 5.

Step 5:  Does the individual hire and pay his or her assistants (if any) and to the extent that these assistants are employees, supervise the details of their work?

No:  Stop.  The individual is an employee, not an independent contractor.
Yes: Move to step 6.

Step 6:  Does the individual make their services available to some client or customer community even if their right to do so is voluntarily not exercised or is temporarily restricted?

No: The individual is an employee, not an independent contractor.
Yes: Move to step 7.

Step 7:  Determine if the individual meets any of the 3 of the following elements:

  • The individual has a substantive investment in the facilities, tools, instruments, materials, & knowledge used by the individual to complete the work.
  • The individual is not required to work exclusively for the other individual/entity.
  • The individual is responsible for satisfactory completion of the work and may be held contractually responsible for failure to complete the work.
  • The parties have a contract that defines the relationship and gives contractual rights in the event the contract is terminated by the other individual/entity prior to completion of the work.
  • Payment to the individual is based on factors directly related to the work performed and not solely on the amount of time expended by the individual.
  • Such work is outside the usual course of the business for which the services is performed.
  • The individual has an IRS Determination (SS-8) of independent contractor status.

    No: the individual meets less than 3 elements, STOP.  The individual is an employee, not an independent contractor.
    Yes: the individual meets 3 or more elements; the individual is an independent contractor.