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RD
RD, Certified Public Accountant (CPA)
Category: Tax
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My friend is a dancer at a nightclub - she has to pay them ...

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My friend is a dancer at a nightclub - she has to pay them $90 per day as a tipout to dance - they do not take any taxes out - nor will he give the dancers a receipt for their payout. Since the owner controls the days they work, the costumes they wear, isn''t he in reality an employer. If they miss a day he fines them heavily, as well as fining them if they are late. It seems that if he is that controling, he is in reality an employer - yet they have to file as independent consultants and pay taxes and s.s.
Submitted: 6 years ago.
Category: Tax
Expert:  RD replied 6 years ago.

This is one of the issues that is complex and often debatable.

 

Here is some of the factors listed from Revenue ruling which can help you determine if you are an employee or independent contractor.

Factors in Revenue Ruling 87-41

1. Is the worker subject to the employer's instructions?

A worker who is required to comply with the employer's instructions as to when, where and how work is to be done is most likely an employee. It is only required that an employer have the right to control the worker, whether or not the control is implemented is irrelevant.

2. Does the employer provide training?

Any form of employer-provided training suggests an employee-employer relationship since training implies that the work needs to be performed in a particular manner. The IRS defines training in very broad terms.

3. What is the degree of integration of the services into the business?

If the success of the services performed by the individual is crucial to the success of the business as a whole, control over the services is presumed to exist. The greater the degree of integration of the work into the business, the greater the likelihood that an employer-employee relationship exists.

4. Are the services rendered personally by the worker?

Services required to be performed in person by the worker tend to indicate control, especially when the employer has an interest in how the results are achieved.

5. Who is responsible for hiring, supervising and paying assistants?

Hiring, directing, or paying assistants, when done by the employer, shows an employee-employer arrangement. Independent contractors hire, direct and pay their own people.

6. Does a continuing relationship exist?

Continuing work by the individual, even if not regular, points toward an employer-employee relationship.

7. Does the employer set hours of work?

Designating hours of work demonstrates control over the worker.

8. Is full-time work required?

Utilizing a worker on a full-time basis precludes the worker from pursuing other work and is an indication of control.

9. Is the person doing work on the employer's premises?

Performing work away from the employer's offices reduces the thread of control. While some independent contractors do work on the employer's premises, this tends to indicate greater control by the employer.

10. Is the work order or sequences set by the employer?

Following routines or work patterns established by the employer is indicative of employee status.

11. Are oral or written reports required?

The requiring of regular progress reports demonstrates control.

12. Is payment by the hour, week or month?

Payment on a fixed periodic basis, rather than upon completion of the work, is an indicator of employee status.

13. Does the employer make payment of business and/or traveling expenses?

The payment of these expenses by the employer points to regulation of business activities and thus indicates employee status.

14. Is the employer responsible for the furnishing of tools and materials?

Independent contractors normally provide their own tools and materials.

15. Is the worker required to make a significant investment to perform the work?

The making of a substantial investment by the worker, e.g. rental of a facility, tends to support the existence of independence.

16. Does performance result in realization of profit or loss?

The ability to realize either a profit or a loss in performing the work is a characteristic of an independent contractor.

17. Is the individual working for more than one firm at a time?

The performance of services for several customers simultaneously is typical of an independent contractor.

18. Is the individual engaged in making service available to the general public?

Marketing one's services to the general public indicates independence.

19. Does the employer have a unilateral right to discharge the worker?

The right to discharge at will indicates an employer-employee relationship. Independent contractors typically can only be discharged for failure to meet contract requirements.

20. Does the worker have a unilateral right to terminate his services?

An employee may resign at will, but an independent contractor may be contractually obligated to perform.

 

You can find quite some information on such classification from the IRS website at the link below-

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

 

You can file Form SS-8 (http://www.irs.gov/pub/irs-pdf/fss8.pdf) and ask the IRS to make a determination.

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

 

RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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