IRS 20-factor test

Where did the IRS 20-factor test come from?

The test comes from Revenue Ruling 87-41, issued by the IRS in 1987. It gathered the factors that courts had used to tell employees from independent contractors under common law and organised them into twenty questions, giving examiners and businesses a consistent way to assess control.

Is the 20-factor test still used?

Not in its original form. The IRS now frames the same analysis around three categories, behavioural control, financial control and the type of relationship, set out in Publication 15-A. The twenty factors remain a useful guide to the evidence, and some state agencies still refer to them, but they are no longer the IRS's primary framework.

What kind of factors does the test look at?

The factors probe control and independence. Some ask whether the business directs the work: instructions, training, set hours, where the work happens. Others ask about the worker's business independence: investment in tools, chance of profit or loss, and whether they serve several clients. The more the business controls, the more the worker looks like an employee.

20-factor test vs the three-category framework

Frequently asked questions

• Are all twenty factors required to prove employment?+

  No. The factors are guides, not a scorecard. An examiner does not count how many point each way; they weigh the factors together to judge how much control the business has. A worker can meet only some factors and still be an employee, or a contractor, depending on the overall picture.
• Is the 20-factor test the same as the common-law test?+

  They are closely linked. The common-law test asks whether the business has the right to control the worker. The twenty factors are simply the specific pieces of evidence the IRS used to answer that question. Today the IRS groups the same evidence into three categories, but the underlying common-law test is unchanged.
• Does the 20-factor test apply outside the United States?+

  No. It is a US federal tax framework. Other countries use their own classification tests, such as the UK's control, substitution and mutuality tests or various multi-factor tests elsewhere. A worker engaged abroad must be assessed under local rules, not the IRS factors.
• How can a business be confident in its classification?+

  Document how the working relationship actually operates against the control factors, keep that evidence, and where the answer is unclear, seek a formal determination or treat the worker as an employee. For workers abroad, a classification check under local law, or hiring through an employer of record, removes the guesswork.

Related terms

• IRS common-law test
• Economic reality test
• Worker misclassification
• Section 530 Relief