Independent Contractor - Financial Control
Financial control refers to facts that show whether or not the
business has the right to control the economic aspects of the
worker’s job.
The financial control factors fall into the categories of:
1.
Significant investment
2.
Unreimbursed expenses
3.
Opportunity for profit or loss
4.
Services available to the market
5.
Method of payment
6.
Significant investment
An independent contractor often has a significant investment in the
equipment he or she uses in working for someone else. However, in
many occupations, such as construction, workers spend thousands of
dollars on the tools and equipment they use and are still considered
to be employees. There are no precise dollar limits that must be met
in order to have a significant investment. Furthermore, a
significant investment is not necessary for independent contractor
status as some types of work simply do not require large
expenditures.
Unreimbursed expenses
Independent contractors are more likely to have unreimbursed
expenses than are employees. Fixed ongoing costs that are incurred
regardless of whether work is currently being performed are
especially important. However, employees may also incur unreimbursed
expenses in connection with the services that they perform for their
business.
Opportunity for profit or loss
The opportunity to make a profit or loss is another important
factor. If a worker has a significant investment in the tools and
equipment used and if the worker has unreimbursed expenses, the
worker has a greater opportunity to lose money (i.e., their expenses
will exceed their income from the work). Having the possibility of
incurring a loss indicates that the worker is an independent
contractor.
Services available to the market
An independent contractor is generally free to seek out business
opportunities. Independent contractors often advertise, maintain a
visible business location, and are available to work in the relevant
market.
Method of payment
An employee is generally guaranteed a regular wage amount for an
hourly, weekly, or other period of time. This usually indicates that
a worker is an employee, even when the wage or salary is
supplemented by a commission. An independent contractor is usually
paid by a flat fee for the job. However, it is common in some
professions, such as law, to pay independent contractors hourly.
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