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Workers Compensation: Employee or Independent Contractor?

It takes more than calling someone an independent contractor to make them one.

August 2013

Many people think they get to pick if someone is an employee or independent contractor. This is not the case. This is the list of criteria used to define who is an employee vs. an independent contractor. Getting this wrong can be a costly mistake.

Employee or Independent Contractor

Behavioral Control

Types of Instructions Given

An employee is instructed about when, where and how to do work.

1. Where and when

2. What tools/equipment to use

3. What workers/assistants can be hired

4. Where supplies and services can be purchased

5. Which specific person is responsible for which exact amount of work

6. The sequence in which the work must be completed

Degree of Instruction

This refers to the notion that the more detailed the instruction is that's given, the more control the business has on the on the individual performing the work. The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right.


Training provided by the business indicated how they want the work done is strong evidence of an employee relationship.

Financial Control

Significant Investment

Independent contractors often make sizable investments into the equipment used for the performance of the job.

Unreimbursed Expenses

It's likely that independent contractors are not reimbursed for their expenses.

Opportunity for Profit or Loss

Another key characteristic in an independent contractor is the ability to suffer a financial loss during the job.

Services Available to the Market

Independent contractors enjoy the freedom to seek opportunities within their market. They are allowed to advertise themselves, keep a business location, and to work wherever desired in the their market. Independent contractors also are generally paid on a by-job basis, while employees are paid on salary or wage for their time.

This was a shortened sample of the IRS rules. For a complete listing, visit You can also get more information from the NC Industrial Commission

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