Employee

An employee is an individual hired by an organization or business owner to do a specific job.

According to the IRS "Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed." The IRS provides the following example:
Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. She works 6 days a week, and is on duty in Bob's showroom on certain assigned days and times. She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Lists of prospective customers belong to the dealer. She has to develop leads and report results to the sales manager. Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. She is paid a commission and is eligible for prizes and bonuses offered by Bob. Bob also pays the cost of health insurance and group-term life insurance for Donna. Donna is an employee of Bob Blue.

The Three Part Test to Determine Employee Status

When determining a worker’s status, you must consider your control over them. If you have great control over the worker, they are probably an employee. To help you examine control, you can use a three-part test from the IRS called common law rules. The three parts are explained below.

• Behavioral control: Do you control or have the right to control what the worker does and how the worker does their job? If so, the worker might be an employee.
• Financial control: Do you control the business aspects of the worker’s job? This includes things like how the worker is paid, whether expenses are reimbursed, and who provides tools and supplies. If you control business aspects, then the worker might be an employee.
• Type of relationship: Are there any written contracts or employee type benefits? These include things like retirement plans, insurance, and vacation and sick pay. Will your relationship with the worker continue? Is the work performed a key aspect of your business? If you answered yes to these things, then the worker might be an employee.

You must consider all three parts of the test. One factor doesn’t weigh more than the others. Also, there is not a set number of factors that a worker needs to meet to be considered an employee. For example, a worker might only meet two parts of the test and still be classified as a common law employee.