A contractor who behaves and is treated like an employee is an employee from the viewpoint of the U.S. Internal Revenue Service (IRS). The IRS applies a 20-part test in order to determine whether a certain worker should be classified as an employee or an independent contractor. The main issue underpinning the test is who sets the work rules: employees must follow rules set by their bosses; independent contractors set their own rules. An individual who sets his or her own hours, receives payment by the job, and divides his or her time between work for several different employers would typically be classified as an independent contractor. Other criteria involve who provides the tools and materials needed to complete the work. An individual who works at an employer's facility and uses the employer's equipment may be considered an employee—unless the individual is providing software consulting, for instance; one who works at a separate location and provides his or her own equipment would be classified as an independent contractor. Finally, an independent contractor usually pays his or her own business expenses and takes the risk of not receiving payment when work is not completed in accordance with a contract; an employee is usually reimbursed for business-related expenses by the employer and receives a paycheck whether his or her work is completed or not.
