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Employee Definition | Payroll Glossary | Payroll-Taxes.com


Any worker who receives compensation for services is either an independent contractor or an employee. Any worker who performs services for another subject to the latter's control regarding the result to be accomplished and the means by which that goal will be achieved is an employee. The actual direction or control of the activities of the one performing the services is not necessary; the important factor is that the employer has the legal right to control those activities, whether or not the right is exercised.

Classification of workers as independent contractors or as employees is not always a simple matter; federal and state regulations make use of four separate sets of rules and methodologies for making this determination.

Most states use a more stringent, three-part test ABC Test, to determine whether a worker is an employee. Other states rely on the Common Law Test to determine worker status.

As with any issue before the IRS and state regulatory agencies, special rules apply to all sorts of worker groups including, but not limited to, accountants, agricultural labor, attorneys, casual labor, corporate directors and officers, domestics, family members, insurance agents, military, ministers, partners, physicians and dentists, and students. Check the specific rules if you are using these types of workers.

See the following article for details.


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Helpful Hint... Anytime you move or have a major life change (for example - marriage, divorce, birth of a child, etc.) always be sure to complete a new W-4!