Abc Rule for Independent Contractors

If you`re an independent contractor, it`s important to know how to protect yourself and your business. One way to do that is by following the ABC rule. This rule was created by the IRS to help determine whether a worker should be classified as an employee or an independent contractor.

The ABC rule looks at three factors: control, behavior, and financial. Let`s break down each factor and what it means for independent contractors.

Control

Control refers to how much control the employer has over the work being done. If the employer has a lot of control over the worker, they may be classified as an employee. If the worker has more control over how they do their work, they may be classified as an independent contractor.

For example, if an employer tells a worker when, where, and how to do their work, they are exercising a lot of control. On the other hand, if the worker has more autonomy and can decide when, where, and how to do their work, they have more control.

Behavior

Behavior refers to the type of work being done. If the worker is doing work that is integral to the employer`s business, they may be classified as an employee. If the worker is doing work that is outside of the employer`s core business, they may be classified as an independent contractor.

For example, if a graphic designer is hired by a marketing agency to design graphics for their clients, they may be classified as an independent contractor. However, if a graphic designer is hired by a clothing company to design graphics for their clothing line, they may be classified as an employee.

Financial

Financial refers to how the worker is paid. If the worker is paid a salary or hourly rate, they may be classified as an employee. If the worker is paid per project or has the opportunity to make a profit or loss, they may be classified as an independent contractor.

For example, if a writer is paid a salary to write blog posts for a company, they may be classified as an employee. However, if a writer is paid per article and has the opportunity to pitch their own ideas, they may be classified as an independent contractor.

Following the ABC rule is important for independent contractors because it determines whether they are entitled to certain benefits, such as minimum wage, overtime pay, and workers` compensation. It also determines how they are taxed.

In conclusion, understanding and following the ABC rule is crucial for independent contractors. By doing so, they can protect themselves and their businesses and ensure they are classified correctly.