TN 3 (07-09)

RS 02101.052 Manner of Payment


IRS Revenue Ruling 74-389

A. Employee status

Payment by the hour, week, or month generally points to an employer-employee relationship, if this method of payment is not a way of paying a lump sum agreed upon as the cost of doing a job.

Payment of regular amounts at stated intervals to a worker is a strong indication that an employer-employee relationship exists.

Payments received from a third party (e.g., tips or fees) are not controlling in determining whether an employment relationship exists.

Generally, a worker is an employee if he or she is guaranteed a minimum salary or is given a drawing account of a definite amount at stated intervals and is not required to repay any excess drawn over commissions earned.

B. Independent contractor status

1. Payments based on commission

Payment by the job or on straight commission generally indicates independent contractor status. Payment by the job includes a lump sum that is computed by the number of hours required to do the job at a fixed rate per hour. Such a payment should not be confused with payment by the hour.

NOTE: A commission-based worker may be classified as either an employee or an independent contractor. Look to see who takes the risk of financial loss on the job. If the employee assumes the risk of financial loss, he or she is likely an independent contractor. If the employer does not assume the risk of financial loss on the project, the worker is likely an employee.

2. Payments base on flat fee

Performance of a task for a flat fee usually indicates independent contractor status. This is especially true if the worker incurs the expenses while performing the services. Frequency of payments is not relevant (e.g., daily, weekly, or monthly).

C. Reference

Social Security Handbook, Chapter 815 : Are you paid at specified intervals?

To Link to this section - Use this URL:
RS 02101.052 - Manner of Payment - 10/20/2009
Batch run: 07/03/2014