Source: http://businessforum.com/employ01.html
Timestamp: 2019-04-20 04:34:10+00:00

Document:
At the 1995 White House Conference on Small Business, the issue of worker classification was mentioned frequently as one of the greatest concerns of smaller businesses. Margaret Milner Richardson, Commissioner of Internal Revenue, pledged to address this concern and accompanying confusion. On February 28, 1996, the draft of a new training manual was issued for IRS examiners who evaluate whether workers are employees or independent contractors.
An employee covered by an agreement under §218 of the Social Security Act.
Further, the Code recognizes workers in three occupational categories specifically as statutory non-employees, viz., real estate agents (IRC §3508), direct sellers (IRC §3508), and companion sitters (IRC §3506).
While the classification is usually cut-and-dried for a corporate officer, even this occupational category may be hazy in a smaller business where one person frequently serves as a corporate officer in several different small corporations. In these special instances, the guidance of competent tax counsel is indeed prudent.
Statutory employees are considered to be employees for FICA tax and, in some instances, FUTA tax, but not necessarily for income tax withholding.
The Internal Revenue Code §3121(d)(4) addresses workers for state and local govern-ments receiving FICA coverage pursuant to §218 of the Social Security Act. Thus, this category of employee under the Code is irrelevant for the smaller business.
This brings us to the category where most disputes are to be encountered, viz., common law employees. The common law standard provides "that an employer-employee relationship exists when the person for whom the services are performed has the right to control and direct the individual who performs the services. This control refers not only to the result to be accomplished by the work, but also the means and details by which that result is accomplished. In other words, an employee is subject to the will and control of the employer not only as to what work shall be done but also how it shall be done. It is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if the employer has the right to do so."
The nub of the employee versus independent contractor question is found in the "control test." Control must be ascertained in the relationship between the worker and the business owner. The IRS and Social Security Administration have compiled a checklist of 20 factors used to determine worker status in Court decisions. These 20 considerations have been published in Rev. Rul.. 87-41, 1987-1 C.B. 296, and are often called the Twenty Factor Test.
Location, hours and duration of work.
Services available to the public.
Opportunity for profit or loss.
In most circumstances, commonsense responses by the owner/manager of the smaller business to the "control test" can accurately determine worker classification under the common law. It is usually best to simply avoid murky or controversial situations. As always, when in doubt, first seek competent professional tax counsel.

References: §218
 §3508
 §3508
 §3506
 §3121
 §218