Question

Which of the following factors are used by the courts in order to determine a taxpayers status as an employee or self employed contractor?

A) Control test, ownership of tools test, chance of law suit, interrogation test

B) Control test, employer test, chance of lawsuit integration test

C0 Control test, ownership of tolls test, chance of profit and loss, integration test

D) Control test, employer test, chance of profit and loss, integration test.

Answer 1

Option (D)- Control test, employer test, chance of profit and loss, integration test.

Is correct, based on following facts.

In order to determine a taxpayers status as an employee or self employed contractor, Four of the most significant tests are:

1) Control Test - We are to see that it is contract of service or a contract for service, further This test deals with the ability of the company or institution to control the actions of the individual.

2) Employer Test - This test deals with the nature of the service provided. If an individual is contracted to achieve a certain objective or result, then the service provided would indicate that the individual is an independent contractor. If, however, the contract is for personal services with no specific objective, the contract would resemble one for employment. In other words, this test looks to whether the alleged employee is required to make their services available on an ongoing basis or whether services are made available to achieve a specified result.

3) Chance of profit and loss - It is also known as economy reality test. This test deals with the economic practices of the individual. If the individual has ultimate responsibility for the profit or loss of the contract, then this test would indicate a self-employed situation. Where there is financial risk, opportunity to profit or possibility of loss and responsibility for costs, it is inferred that the taxpayer is an independent contractor. On the other hand, where these elements do not exist, there is an inference of employment. The extent to which the individual uses the property of the employer in the course of the contract is also considered.This test deals with the economic practices of the individual. If the individual has ultimate responsibility for the profit or loss of the contract, then this test would indicate a self-employed situation. Where there is financial risk, opportunity to profit or possibility of loss and responsibility for costs, it is inferred that the taxpayer is an independent contractor. On the other hand, where these elements do not exist, there is an inference of employment. The extent to which the individual uses the property of the employer in the course of the contract is also considered.

4) Integration test - This test deals with the individual's degree of involvement in the organization. This test presupposes that if the services provided by an individual are integral to the organization, then their involvement is one of employee. If the services can be viewed as part of a separate business of the individual who provides the services, the individual may then be viewed as an independent contractor. The courts have tended to downplay this test, however, on the basis that businesses can be mutually dependent on each other without a "master-servant" relationship.