Employee or contractor? Records to organize before you decide

Document how the work actually happens

• Who decides when, where, and how the work is performed?
• Who directs and trains the worker on how to do the job?
• Who supplies the tools, equipment, and systems, and who bears the unreimbursed costs?
• How is the worker paid and can the worker realize profit or loss?
• Is the relationship ongoing and is the work central to the business?
• Can the worker serve other customers or hire help?

Separate the decision from the paperwork

Forms and contracts document a relationship; they do not replace analysis of the underlying facts. Different agencies also apply different tests. The IRS uses a common law analysis centered on the right to direct and control the worker, the U.S. Department of Labor applies an economic reality analysis under the Fair Labor Standards Act, and North Carolina applies its own standards for purposes such as unemployment insurance and workers compensation. The same arrangement can be characterized differently under each, so owners should seek appropriate tax and legal guidance for the specific arrangement.

Resolve the workflow before the first payment

Classification affects onboarding, payroll or vendor setup, recordkeeping, reporting, and deadlines. Addressing the question before work begins is usually easier than reconstructing the arrangement later.