The IRS uses a Common-Law standard in determining whether a worker is an employee or independent contractor. On the "Employee (Common-Law Employee)" page, the IRS states that "Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed."
The IRS provides further guidance on this standard on the "Independent contractor (self-employed) or employee?" page stating that "Facts that provide evidence of the degree of control and independence fall into three categories:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of relationship: Are there written contracts or employee type benefits (that is, pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?"
The Department of Labor also has a different set of standards for determining worker classification and there is an agreement between the two agencies to share information on individual workers. Thus an worker being considered an employee under either standard is likely sufficient to treat them as an employee.
The article "Employee or Independent Contractor?" provides more detailed information and includes several helpful resources.