20-Factor Test



A20-factor test is a test commonly used by Internal Revenue Service(IRS) to determine whether a person is an employee or an independentcontractor or. It is essential for a business owner to determinewhether his or her workers are providing their services asindependent contractors or as employees. This test considers twentyfactors to distinguish the two. However, the degree of importance ofevery factor depends on the occupation, as well as services offered(Fishman,2008).Example of independent contractors are lawyers, accountants,dentists, doctors, auctioneers, contractors and subcontractors whoare independent profession, business, trade, and they offer theirservices general public. On the other hand, an employee is a personwho offers his or her services and has no control over what is to bedone and how it is done. The employer has the right to control overthe services offered.

AssumingJanet is a salesperson working for Bob Blue auto dealer. She isworking on a full-time basis whereby she works for six days per week.She works on the showroom on the assigned days and for assignedtasks. Some of his assignment is to write weekly reports that shereports them to sales manager. Janet has sufficient experiencehence, she does not need lot of assistance in financing sales ordoing most of her assigned tasks. Janet does not receive fixed salarybut rather receives commission depending on the numbers of sales. Inaddition, Janet receives bonuses and is eligible for prizes. Further,her employer pays for her health insurance and life insurance.Applying 20-factor test, it is clear that Janet is an employee.However, it is vital that employees to consult IRS to avoidmisclassifying employees and independent contractor.


Fishman,S. (2008).&nbspWorkingwith independent contractors&nbsp(6thed.). Berkeley, CA: Nolo.