Name: Contractor vs Employee
Brand: Aurora Training Advantage
Price: 219.00 USD
Availability: InStock
Rating: 4.4 (2 reviews)

Question 1

What is the IRS 20-factor test for determining if a worker is an employee or independent contractor?

Accepted Answer

The IRS 20-factor test—formally known as the Common Law Right-to-Control Test—evaluates the degree of control an employer has over a worker to determine employment status. The 20 factors include: whether the company provides instructions on when, where, and how work is done; whether the company provides training; whether the worker's services are integrated into the business's operations; whether services must be rendered personally; who hires and supervises any assistants; whether the relationship is continuing; whether the company sets the work hours; whether full-time work is required; whether work must be performed on company premises; who sets the order or sequence of work; whether written or oral reports are required; whether the worker is paid by the job or by time; who pays business and travel expenses; who furnishes tools and materials; whether the worker has an investment in their work facilities; whether profit or loss is possible; whether the worker provides services to multiple unrelated businesses; whether services are available to the general public; whether the company has the right to discharge the worker; and whether the worker has the right to quit without penalty. These factors are organized under three broad IRS categories: behavioral control, financial control, and the nature of the relationship. Chuck Borek, attorney and CPA, covers all 20 factors in Aurora Training Advantage's Contractor vs Employee webinar.

Question 2

What are the tax and legal consequences of misclassifying an employee as an independent contractor?

Accepted Answer

Worker misclassification carries severe financial and legal consequences that can far exceed any cost savings achieved through the misclassification. For tax purposes, employers who misclassify employees as independent contractors are liable for the employer's share of FICA (Social Security and Medicare) taxes on all compensation paid, as well as federal unemployment tax (FUTA), which was not withheld or deposited. The employer may also owe income tax withholding that was not collected from the worker. The IRS can assess all of these amounts plus penalties and interest going back three to six years depending on whether the failure was negligent or intentional. State tax agencies conduct parallel audits and can assess additional state payroll tax liabilities. Beyond taxes, misclassified workers may file claims for unpaid overtime, minimum wage violations, unemployment benefits, workers' compensation coverage, and employee benefits—including health insurance, retirement plan contributions, and paid leave—that they should have received as employees. Class action lawsuits involving multiple misclassified workers can be financially devastating. Organizations may also face regulatory enforcement actions from the Department of Labor, IRS, or state labor agencies. Chuck Borek's Contractor vs Employee webinar at Aurora Training Advantage provides a comprehensive overview of misclassification consequences and compliance strategies for accounting and HR professionals.

Question 3

What is the state ABC test for worker classification and how does it differ from the IRS test?

Accepted Answer

The ABC test is a worker classification standard used by more than 30 states that creates a strong presumption of employee status—with the burden on the hiring entity to prove that a worker is truly an independent contractor under three specific criteria. Under the ABC test, a worker is presumed to be an employee unless all three of the following conditions are met: (A) the worker is free from the control and direction of the hiring entity in connection with the performance of work; (B) the worker performs work that is outside the usual course of the hiring entity's business; and (C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. The B prong—that the work must be outside the usual course of business—is the most restrictive element and is what makes the ABC test significantly harder to satisfy than the IRS multi-factor test. California's AB5, which implemented the ABC test broadly across industries, became one of the most discussed worker classification laws in recent years, particularly affecting gig economy companies. Other states have adopted similar tests with varying industry-specific exceptions. Organizations operating in multiple states must assess classification under each applicable state test in addition to the federal standard. Aurora Training Advantage's Contractor vs Employee webinar, taught by Chuck Borek, covers both the IRS 20-factor test and state ABC tests with a comparison map.

Question 4

What is the IRS Voluntary Classification Settlement Program (VCSP) and how does it work?

Accepted Answer

The IRS Voluntary Classification Settlement Program (VCSP) allows eligible businesses to reclassify workers who have been misclassified as independent contractors or non-employees as employees for future tax periods, in exchange for paying a reduced employment tax liability and receiving protection from federal employment tax audits on the reclassified workers. To qualify, an employer must have consistently treated the workers as non-employees, must have filed all required 1099 Forms for the workers in the prior three years, and must not currently be under employment tax audit by the IRS or under audit by the Department of Labor regarding the classification of the workers. Under the VCSP, the employer pays 10% of the employment tax liability that would have been due on compensation paid to the reclassified workers for the most recent tax year, with no interest or penalties assessed. The application is made using Form 8952. This program provides a relatively low-cost path for employers who recognize a classification problem to come into compliance prospectively before the IRS discovers the issue through audit. Chuck Borek covers Form 8952 requirements and the VCSP process in detail in Aurora Training Advantage's Contractor vs Employee webinar, alongside other audit defense and appeal strategies for employers facing worker classification scrutiny.

Question 5

What red flags attract IRS attention to worker classification issues?

Accepted Answer

The IRS and state tax agencies use both data matching and complaint-triggered audits to identify potential worker misclassification, and certain organizational patterns are particularly likely to draw scrutiny. High volumes of 1099-NEC filings to the same individual over multiple years—particularly when the amounts are large and the services are core to the business—trigger IRS attention as potential reclassification candidates. Workers who previously held W-2 employment with the same company and were subsequently converted to 1099 independent contractor status are closely scrutinized, as this pattern often indicates a conversion designed to avoid payroll taxes rather than a genuine change in work arrangement. Industries with known misclassification patterns—including construction, staffing, transportation, food service, healthcare, and professional services—receive heightened IRS examination attention. Form SS-8 filings by workers claiming they were misclassified automatically trigger IRS review of the employer's classification decisions. State unemployment insurance audits, which arise when misclassified workers seek unemployment benefits after termination, frequently spawn IRS referrals. A significant gap between the number of W-2 employees and the size of the workforce evident from other business indicators can also attract notice. Chuck Borek's Contractor vs Employee webinar at Aurora Training Advantage helps businesses identify their own red flags and conduct proactive self-audits before IRS scrutiny arrives.

Contractor vs Employee

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