Am I Compliant?

Despite its importance, determining IC compliance can often be an ambiguous exercise.

For years, the IRS used a "20 Questions" test that was the de facto set of qualification guidelines. However, it has recently moved away from relying exclusively on these questions. Instead, the IRS now focuses primarily on establishing the degree of control clients have over ICs as it pertains to three factors: behavioral control, financial control, and the type of relationship of the parties.
The results of compliance assessments, therefore, are not always cut-and-dried; they're often open to differing interpretations from different assessors. However, several factors (see below) typically indicate non-compliance.

Behavioral Control

You are typically considered non-compliant if:
• you are told where, when, or how to complete your work.
• you use your client's equipment and/or facilities to complete your work.
• you do not have autonomy in selecting and managing sub-contractors you may use to complete your work.
• you are instructed by your client to complete tasks in a certain order.
• you are trained by your client.

Financial Control

You are typically considered non-compliant if:
• you are not marketing your services to other potential clients.
• you are not responsible for the profit/loss of your sole proprietorship.
• you are paid a fixed hourly wage rather than a set fee for the completion of a deliverable.
• you generate all or most of your contracting income from one client.

Type of Relationship

You are typically considered non-compliant if:
• you do not have a contract specifically stating that you are a contractor. (Note that the presence of such a contract does not automatically make you compliant if you do not pass the other criteria.)
• you receive employer-like benefits or insurances from your client.
• you expect a permanent or indefinite relationship with your client.
• your services are considered a key strategic aspect of your client's business.

What if I'm Incorporated?

Many ICs or small business owners believe that once they incorporate themselves, they are compliant by default. This is a huge and potentially costly misconception. Even if you have done everything you need to incorporate and everything is on order legally, you still face reclassification if you're not compliant with the IRS's guidelines.