Who uses the IRS common-law test?

The IRS uses it to decide whether a worker is an employee for federal tax purposes, which affects income tax withholding and payroll taxes. It is distinct from the economic reality test that the Department of Labor uses for minimum wage and overtime, so a worker can be assessed under both.

Is control the only thing that matters?

Control is the heart of the test, but it is measured across three categories, not one. Behavioural control, financial control and the type of relationship all feed in. A business might not dictate hours, yet still be an employer because it controls the methods, provides the tools and offers an ongoing role with benefits.

Can a written contract settle worker status under this test?

A contract is one piece of evidence within the type-of-relationship category, but it does not decide the matter. If the day-to-day reality shows the business controlling how the work is done, the IRS can treat the worker as an employee regardless of a contract that calls them a contractor.

How does this apply when hiring outside the US?

It does not. The common-law test is US-specific. To classify a worker in another country you must apply that country's rules, which can be stricter. Where classification is uncertain, engaging the person through an employer of record puts them on a compliant local employment contract and removes the risk.

Glossary

IRS common-law test

The IRS common-law test is the standard the US Internal Revenue Service uses to decide whether a worker is an employee or an independent contractor, based on how much the business controls the worker across three categories of evidence.

Reviewed by Teamed's in-house employment-law team·Last updated 28 July 2026

Also known as: common-law test, IRS control test

What is IRS common-law test?

The IRS common-law test is how the US Internal Revenue Service decides, for federal tax purposes, whether a worker is an employee or an independent contractor. The core question is control: does the business have the right to direct not just the result of the work but how it is done? If so, the worker is usually an employee.

The IRS groups the evidence into three categories. Behavioural control looks at whether the business directs how the work is done, through instructions and training. Financial control looks at the business side of the arrangement, such as investment, unreimbursed expenses and the chance of profit or loss. The type of relationship looks at contracts, benefits and permanence.

No single category or factor is decisive. The IRS weighs the whole relationship to reach a judgement, which is why two workers with the same job title can be classified differently.

What are the three categories in the common-law test?

Behavioural control asks whether the business directs how the work is done. Financial control asks who bears the business risk: investment, expenses and the chance of profit or loss. The type of relationship asks about written contracts, employee benefits, and whether the arrangement is ongoing. Together they show the degree of control.

How is the common-law test different from the 20-factor test?

They are the same idea at different levels of detail. The 20-factor test, from Revenue Ruling 87-41, listed twenty specific questions. The IRS later grouped those questions into the three common-law categories to make the analysis clearer. Both ask the same underlying question: how much control does the business have?

What if a business is not sure how to classify a worker?

A business that cannot decide can file IRS Form SS-8, which asks the IRS to make an official determination of a worker's status. The process takes time, so many businesses instead document the relationship carefully against the three categories, or, for workers abroad, use a local classification check or an employer of record.

Key facts

Three common-law categories: The IRS assesses control through behavioural control, financial control and the type of relationshipNo single factor is decisive; the IRS weighs the whole relationship to determine employee status for federal tax purposes.Source: Internal Revenue Service· verified 2026-07-28
Requesting an IRS determination: A business or worker can file Form SS-8 to have the IRS decide the worker's statusForm SS-8 is the Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.Source: Internal Revenue Service· verified 2026-07-28

IRS common-law test vs FLSA economic reality test

	Common-law test	Economic reality test
Used by	IRS, for federal tax	Department of Labor and courts, for wage law
Central question	Right to control the work	Economic dependence on the business
Main focus	Control across three categories	Several economic factors weighed together

Frequently asked questions

Who uses the IRS common-law test?
The IRS uses it to decide whether a worker is an employee for federal tax purposes, which affects income tax withholding and payroll taxes. It is distinct from the economic reality test that the Department of Labor uses for minimum wage and overtime, so a worker can be assessed under both.
Is control the only thing that matters?
Control is the heart of the test, but it is measured across three categories, not one. Behavioural control, financial control and the type of relationship all feed in. A business might not dictate hours, yet still be an employer because it controls the methods, provides the tools and offers an ongoing role with benefits.
Can a written contract settle worker status under this test?
A contract is one piece of evidence within the type-of-relationship category, but it does not decide the matter. If the day-to-day reality shows the business controlling how the work is done, the IRS can treat the worker as an employee regardless of a contract that calls them a contractor.
How does this apply when hiring outside the US?
It does not. The common-law test is US-specific. To classify a worker in another country you must apply that country's rules, which can be stricter. Where classification is uncertain, engaging the person through an employer of record puts them on a compliant local employment contract and removes the risk.

Related terms

Note

This is general information, not legal advice. Statutory rules vary by country and change over time.

Glossary

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Last verified 2026-07-28