Aaron Research Paper
TAX FILE MEMORANDUM
SUBJECT: Mr. Aaron Research
Independent Contractor vs. Employee
Aaron, a resident of Minnesota, has been a driver for Green Delivery Services for the past six years. Aaron leases a truck from Green and his compensation is based on a percentage of the income resulting from his pickup and delivery services. Green allows its drivers to choose their own shift and does not exercise any control over how the services are carried out. In the agreement with Green, it labels its drivers as independent contractors, maintains no health or retirement plans for its drivers, and each year reports the drivers income by issuing Forms 1099-Misc rather than Forms W-2. Lastly, Green requires its drivers to maintain a commercial driver’s license and remain in good standing with the state highway law enforcement division.
Issue: The issue in question is whether Aaron should be classified as an employee of Green Delivery Services or if he is an independent contractor and therefore, should be subject to self-employment tax.
Section 3121(d) contains three separate and independent tests for determining who employees are. In general one can be classified as an employee if under the usual common law rules the relationship between him and the person for whom he performs services is the legal relationship of employer and employee. Generally such relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer. Other factors characteristic of an employer, but not necessarily present in every case, are the furnishing of tools and the furnishing of a place to work, to the individual who performs the services. In general, if an individual is subject to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is an independent contractor. An individual performing services as an independent contractor is not as to such services an employee under the usual common law rules. Individuals such as physicians, lawyers, dentists, veterinarians, construction contractors, public stenographers, and auctioneers, engaged in the pursuit of an independent trade, business, or profession, in which they offer their services to the public, are independent contractors and not employees.