This is captured from a website that deals with the IRS. There is also a good story on MSN. I will put the link at the bottom. With the season fast approaching, this question will be asked over and over again. I thought I would bring all the info together in one place. Here we go... Who Is An Employee? The IRS Definition The Internal Revenue Service uses these criteria to determine whether an individual is an employee or an independent contractor. The worker is an employee if... You or your representative tells the worker where, when, and how to work. You train the worker. The business performance depends on the worker. The worker has a continuing relationship with the company. The workers services must be personally rendered by the him/her. You set the workers work hours. The worker works on the employers premises. You are paid by the hour, weeks, or month. You furnish tools and materials. You can fire the worker without violating a contract. The worker has a right to quit without incurring a liability. The worker does not offer the workers services to the public at large. The worker has no opportunity for profit or loss as a result of the workers service. The worker has no significant investment in the business. You require the worker to submit oral or written reports. The worker is a corporate officer. Section 530 Safe Harbor Rules Section 530 provides certain safe-harbor rules. If you could fall under these safe-harbor rules, the IRS could not re-define the worker as a employee. In general if, the company treated in individuals consistently as a contractor, and the company was in full compliance by filing all required forms such as Form 1099, and if, the company could rely on one of three basis for their practice of carrying the worker as a contractor Judicial precedent (A court case in the companys favor) Past IRS Audit (A past IRS audit determine the worker to be a contractor) Industry Practice (There is a long-standing recognized practice of treating such workers as contract) then, the IRS could not change the status of the worker to employee. 20 Common Law Factors Instructions Training Integration Service rendered personally Hiring, supervising, and paying assistants Continuing relationship Set hours of work Full-time work required Doing work on business owners premises Accomplishing work in certain order or sequence Submission of oral or written reports Method of payment Payment of business or traveling expenses Furnishing tools and equipment Significant investment Realization of profit or loss Work for one entity at a time Offer their services to the general public Right to discharge Right to terminate The link to this story, which deals with FEDEX and their drivers is http://articles.moneycentral.msn.com/Taxes/CutYourTaxes/AreYouPayingYourBosssTaxes.aspx There is a link to an irs article on the second page.