Common law employee
A common law employee is anyone the IRS generally treats as an employee because the business directs what work is done and how.
The IRS applies the label for federal employment tax purposes. It holds regardless of job title, written contract, or whether the person is called a contractor, part-timer, or temp. For a common law employee, you generally owe federal employment taxes, withholding, and Form W-2Form W-2. Form W-2 is the annual wage and tax statement you give employees and file with the Social Security Administration, reporting wages paid and taxes withheld.Click to open the term reporting, with narrow statutory exceptions. Misclassifying the person as an independent contractor does not remove that liability; it only delays discovery. Discovery typically comes through an audit, an unemployment claim, or a complaint, and back taxes, penalties, and interest can follow.
How does the IRS common law test work?
The IRS groups the evidence into three categories rather than a fixed checklist. No single factor decides; the IRS weighs the whole relationship. If you are unsure of someone’s status, you can file Form SS-8 and ask the IRS to decide. Many states apply a separate ABC testABC test. The ABC test is a state law standard: a person you pay for services is your employee unless you prove all three conditions.Click to open the term for wage and unemployment insurance law, which can classify the same person differently. Direct sellers and licensed real estate agents paid almost entirely by sales or output, not hours, under a written nonemployee contract are statutory nonemployees: self-employed for federal tax purposes.
| CATEGORY | WHAT THE IRS LOOKS AT |
|---|---|
| Behavioral control | Whether the business directs, or has the right to direct, how the work is performed, including training and detailed instructions |
| Financial control | Who covers business expenses, who can realize a profit or loss, and whether the person can offer services to other businesses |
| Relationship of the parties | Written contracts, employee-type benefits, permanency, and whether the work is a key part of the business |
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.