Independent Contractor: May an employee also work as an independent contractor for the same employer?

 

January 23, 2018
LIKE SAVE

Though possible, it is not commonplace. The Internal Revenue Service (IRS) regulates who may work as an independent contractor (IC) and broadly bases its requirements on three factors:

  • Behavioral controls (who has the right to direct the work—the employee or employer).
  • Financial controls (who has made a financial investment in the work and stands to make a profit or loss).
  • The type of relationship (such as written contracts that indicate employment, employee benefits and participation in employee meetings).

When these factors are evaluated, and the employer is found to have the main control over the relationship, the worker is considered an employee and cannot be classified as an independent contractor. None of the factors are determinative; the IRS weighs the factors collectively and individually.

If a current employee takes on extra work for an employer, that work must be evaluated against the IRS factors. If that evaluation shows the employer remains in control of the individual in this secondary role, the work is merely an extension of the employee's employment duties; the employee cannot be classified as an IC for the extra work. 

In contrast, if the IRS factors show that an independent contractor relationship exists, the employer could choose to treat the worker as an IC for that extra work. This is most commonly seen when an employee has an established outside business. For example, an employee may have an office cleaning business and may clean the employer's offices in the evening through that business. In this instance, the worker determines how the cleaning work is done, the worker stands to make a profit or take a loss, and work performed is not a key aspect of the employer's business. Under these circumstances, the service does not likely constitute an employment relationship.

If an employer is unsure about the delineation between the employee's normal work and extra work he or she would be doing, it should review SHRM's Audit Checklist for Maintaining Independent Contractor Status and consult with an attorney prior to entering into any agreement with the person as an IC. Employers may also request a determination from the IRS by submitting the Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

For additional information, employers can review the following IRS guidance: Independent Contractor (Self-Employed) or Employee?

 

Express Requests

The HR Knowledge Center has gathered resources on current topics in HR management. Click here to view and request information.



LIKE SAVE

Job Finder

Find an HR Job Near You
Search Jobs

PREPARE FOR CERTIFICATION WITH SHRM

Take your SHRM-CP/SHRM-SCP exam with confidence when you attend an in-person or virtual cert prep program.

Take your SHRM-CP/SHRM-SCP exam with confidence when you attend an in-person or virtual cert prep program.

REGISTER NOW

SPONSOR OFFERS

Find the Right Vendor for Your HR Needs

SHRM’s HR Vendor Directory contains over 10,000 companies

Search & Connect

HR Daily Newsletter

News, trends and analysis, as well as breaking news alerts, to help HR professionals do their jobs better each business day.
temp_image