Fillable Sample Contractor Engagement Letter Template (Page 2 of 3) in pdf

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EMPLOYEE VS. INDEPENDENT CONTRACTOR STATUS

Revenue Ruling 87-41 lists the primary characteristics distinguishing employees from independent contractors. These

characteristics are listed on this checklist. Whichever blank best describes the predominant characteristic of a worker or

position is to be checked. There is no specific mathematical test, although more than one-half of the checkmarks on either

side is a strong indication. The facts and circumstances of each payee-payor relationship should be analyzed. Classifying a

worker as an employee is seldom challenged; finding justification for treating one as independent is more troublesome. The

most common reason for making the distinction is to identify persons--the employees--who are subject to federal income tax

withholding and unemployment taxes. Independent contractors are abbreviated as “ICs”

Instruction and Training

Employees are required to comply with instructions as to when, where, and how work is performed, and their

training is provided either by formal program or work supervision.

ICs are free to perform work according to their own professional standards, use their own methods, and receive

no training from purchasers of their services.

Payment Terms

Employees are paid by the hour, week, or month on a regular, indefinite, and continuous basis. Employees'

business expenses are paid. Fringe benefits are usually provided.

ICs are often paid by the engagement with a fee calculated without regard to time spent. ICs are not paid for

excess time to perform the task nor given paid vacation or sick leave. ICs pay their own expenses.

Engagement Terms

Employer has the right to discharge an employee; control is exercised with threat of dismissal. Employees

have the right to quit without incurring liability.

ICs complete the agreed task without regard to the time it takes and may suffer damages if work is not

performed as contracted.

Relation to Entity

Employees' services are an integral part of the ongoing success and continuation of the organization. Services

are rendered personally by employees, who work only for, have loyalty to, and do not compete with the employer.

Employees are bonded and provided workers compensation.

ICs consult on a per job, limited term, or special project basis. ICs can hire and pay assistants to perform the

work. ICs' services are available to the others on a regular basis. Some ICs work under a company name.

Work Place and Hours

Employees work on business premises or are physically directed and supervised by employer. Hours of work

are established by employer.

ICs often work at their own places of business, and usually set their own time for performing work.

Investment

Employees are dependent upon employer for tools and facilities, and usually make no investment in the job.

Employees bear no risk of loss for financial costs of employer.

ICs buy their own tools, hire workers, pay licensing fees, and are responsible for costs of engagement. ICs bear

financial risk of losing money.

Sample Contractor Engagement Letter Template Page 2