The Contract Administrator must examine the answers the worker provided on the Independent Contractor Questionnaire, the documentation and the task the IC is being hired to perform to see if the worker can qualify as an IC.
This can be difficult because there is no single definition of an IC. Mechanical rules won’t work. For example, some firms will hire any worker as an IC so long as he or she is incorporated and works no longer than six months for the firm. While both these factors are very helpful, they are no guarantee that the worker will not be reclassified as an employee by government auditors. All the facts and circumstances must be examined and weighed on a case-by-case basis.
Check on Safe Harbor Protections
If you can obtain Safe Harbor protection for the worker, you may treat the worker as an IC for employment tax purposes regardless of whether he or she qualifies as such under the normal IRS tests. Safe Harbor protection is available, however, only if you have consistently treated all workers performing similar services as ICs.
One very important question to ask, therefore, is whether your company has ever used employees to perform services similar to those the IC will be asked to do. If you have, you can forget about Safe Harbor protection and you will likely have a harder task dealing with the IRS if you’re audited. (See Federal Taxes and the IRS Rules for more information about Safe Harbor protection.) For this reason, you’re much better off keeping the work your employees and ICs do separate.