Best Accounting, Inc. is a full service accounting practice that does work for businesses and individuals and during the months of January through June, consults with clients and prepares their tax returns. Best Accounting has two owners who are accountants, three staff accountants, and five administrative assistants. At the end of 2012, the owners of Best Accounting realized that the volume of tax returns that it expected to have to prepare during the 2013 tax season exceeded the ability of its staff to do the work. However, the owners of Best Accounting also realized that the business did not have enough work during the rest of the year to justify hiring another full time employee. To address this situation, Best accounting hired T.J. Moody, an experienced tax return preparer, for the six months from January to June 2013.
T.J. Moody worked from his home office, using his own computer, but the returns that he prepared were prepared on software owned by Best Accounting and maintained on servers owned by Best Accounting. The tax returns were assigned by Best Accounting to T.J. and T.J. was expected to complete eight tax returns per week. Depending on the complexity of the tax return, T.J. was paid between $150 and $500 per tax return.
Was T.J. Moody an employee or an independent contractor of Best Accounting? What factors should be considered in making that determination? What do each of those factors suggest as to whether T.J. Moody was an employee or an independent contractor? What difference does it make to Best Accounting whether T.J. Moody is an employee or an independent contractor? What difference does it make to T.J. Moody?
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In this case, T.J. Moody is an independent contractor.
An "independent contractor" differs from the typical definition of an "employee," but the exact definition the role is not exactly set in stone under either common law or IRS regulation.
The definition of an independent contractor falls within the tripartite authority of common law principles, the Fair Labor Standards Act, and finally the case law.
To determine whether an individual is an employee or an independent contractor, the employer must focus primarily on the level of control it has over the contractor's service or product, including whether or not Best Accounting actually defines what is being done by T.J. Moody and how Moody will accomplish the task.
Common law principles define an independent contractor as an individual or business entity that receives compensation in a certain manner. If an individual is on an employer's payroll and receives a regular paycheck at incremental intervals, such person is clearly an employee rather than an independent contractor. Other considerations to utilize when identifying a business or an individual as an independent contractor include:
If the worker supplies his or her own equipment, materials and tools
If all ...
This solution discusses how to determine whether a hired individual is an employee or an independent contractor.