Subscribe (Free) to
Daily or Weekly Newsletters
Post a Job

Featured Jobs

Trust Accounting/5500 Specialist

Sentinel Benefits & Financial Group
(Remote / Wakefield MA)

Sentinel Benefits & Financial Group logo

Conversions Specialist

BlueStar Retirement Services, Inc.
(Remote)

BlueStar Retirement Services, Inc. logo

DB/DC Administrator

Primark Benefits
(Remote / San Mateo CA)

Primark Benefits logo

Pension Administrator

American Pension, LLC
(Berkeley Heights NJ)

American Pension, LLC logo

Retirement Plan Administrator

Prime Pensions Northwest, LLC
(Remote)

Prime Pensions Northwest, LLC logo

Plan Administrator

BlueStar Retirement Services Inc.
(Remote)

BlueStar Retirement Services Inc. logo

Retirement Plan Administrator

Retirement Solutions Specialists, LLC
(Remote)

Retirement Solutions Specialists, LLC logo

Plan Administration Manager

Southern Pension Services
(Remote / Tampa FL)

Southern Pension Services logo

Retirement Plan Administrator

Fulton Bank / Fulton Financial Advisors
(Remote)

Fulton Bank / Fulton Financial Advisors logo

Pension Administrator

Actuaries Unlimited, Inc.
(Remote / Los Angeles CA)

Actuaries Unlimited, Inc. logo

Manager, Client Relationship Management

Guideline, Inc.
(Remote / Solana Beach CA)

Guideline, Inc. logo

Retirement Operations Specialist

Fringe Benefit Group
(Remote)

Fringe Benefit Group logo

Customer Success Associate

Guideline, Inc.
(Remote / Austin TX / Solana Beach CA / Portland ME / San Mateo CA / CO / FL / GA)

Guideline, Inc. logo

Retirement Plan Administrator

Nicholas Pension Consultants
(Remote / Rancho Cordova CA / Corona CA)

Nicholas Pension Consultants logo

Member Services Supervisor

DC Retirement Board
(Remote / Washington DC)

DC Retirement Board logo

Client Manager DB/DC

CMC Pension Professionals
(Remote / Glendale CA)

CMC Pension Professionals logo

Retirement Plan Account Manager

Aegis Retirement Partners, LLC
(Remote / CT / MA / NH / RI)

Aegis Retirement Partners, LLC logo

Pension Plan Administrator

DeMars Pension Consulting Services, Inc.
(Overland Park KS / MO / NE / OK)

View More Employee Benefits Jobs

Free Newsletters

“BenefitsLink continues to be the most valuable resource we have at the firm.”

-- An attorney subscriber

Mobile App image LinkedIn icon
Twitter icon
Facebook icon

BenefitsLink > Q&A Columns >

Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

Audit Guidelines and Independent Contractors

(Posted March 6, 1999)

Question 13: I know the IRS recently issued some audit guidelines about independent contractors. What are they and what affect do they have?

Answer: The IRS has had its institutional hands tied for years. Congress has forbidden them from writing new regulations dealing with the classification of workers as independent contractors or employees. Meanwhile, their existing Revenue Rulings, like Rev. Rul 87-21 which lays out the "20 factor test," are slipping out of date. Court rulings have recognized factors not included in the 20 factor test (such as the intent of the parties, and the skill of the worker). Business conditions have changed so that some factors are not as relevant as they once were (e.g., with telecommuting a popular option, being able to set your own hours or working at home is not as clear a sign of independent contractor status as it once was).

The audit guidelines address these issues. They reorganize the factors affecting employee status under three categories, behavioral control, economic control, and the relationship of the parties. While the guidelines cannot be cited in court, auditors are supposed to use them in analyzing employment situations.

The analysis in the guidelines is excellent, and they are a good primer for anyone faced with an employment tax audit. However, because they cannot be used in court, ultimately it is the formal published rulings (both administrative and judicial) that control. Cases that have come down after the audit guidelines continue to use the 20 factor test, and continue to rely on factors such as control over hours worked as important, even though those factors are discounted by the guidelines.

Chapter 2 of my new book Who's the Employer? discusses employee status and the audit guidelines at great length. There is a detailed chart comparing the guidelines with the 20 factor test.


Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.


Copyright 1999-2017 S. Derrin Watson
Related links:

(restricted access)

(restricted access)

© 2022 BenefitsLink.com, Inc.