Worker Classification
Explore worker classification, eligibility, and essential reporting requirements for new hires.
Worker classification, eligibility, and new hire reporting
Goals
- Understand key payroll concepts and worker classifications
- Determine if a worker should be classified as an employee or independent contractor
- Comply with federal and state requirements for onboarding a new employee
Worker classification and status
Why classification matters
Correctly classifying a worker as an employee or an independent contractor is essential. Each classification comes with distinct tax, reporting, and treatment requirements in Check and under federal law.
Common law test
The IRS uses the Common Law Test to help employers determine worker classification. It focuses on three areas:
- Behavioral control: Does the company control or have the right to control what the worker does and how they do their job?
- Financial control: Does the company control the business aspects of the worker’s job (e.g., how the worker is paid, whether expenses are reimbursed)?
- Type of relationship: Are there written contracts or employee-type benefits, such as a pension plan, insurance, or vacation pay?
If these factors are unclear, the IRS allows employers to submit Form SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding). Once the IRS provides a determination, it is considered final.
Example: employee vs. independent contractor
If a company hires someone to paint its office:
- Employee: The company supplies tools, provides training, and pays an hourly wage. The worker is eligible for overtime and the company must withhold taxes.
- Independent contractor: The worker provides their own tools, sets their schedule, and negotiates the total cost under a contract. The company does not withhold taxes.
Exceptions to the common law test
Reasonable Basis Test
Under Section 530 of the Revenue Act of 1978, the Reasonable Basis Test allows an employer to treat a worker as an independent contractor even if the Common Law Test would classify them as an employee. The test applies if the employer has a reasonable basis such as:
- Prior IRS rulings or audits
- A long-standing industry practice (at least 10 years or prior to 1978) where at least 25% of the industry treats similar workers as independent contractors
- Judicial precedent or technical advice from the IRS
Other exceptions
- Statutory employees
- Statutory non-employees
- Leased employees
- Temporary agency workers
These categories have specific definitions and tax implications that may require additional research.
Employment eligibility verification
Form I-9
Under the Immigration Reform and Control Act of 1986 (IRCA), every employee hired in the U.S. must complete Form I-9 (Employment Eligibility Verification). This confirms the employee’s identity and legal authorization to work in the U.S.
- Employers must retain a copy of the I-9 for either:
- Three years from the date of hire, or
- One year after the employee’s termination date, whichever is later
- Do not instruct employees which documents to provide. Instead, supply the full list of acceptable documents.
- Employees can provide:
- One document from List A, or
- One document from List B and one from List C
Form W-4
Employees must also submit Form W-4 (Employee’s Withholding Certificate) to specify their federal income tax withholding. If no W-4 is submitted, the default withholding status is single or married filing separately, with no other adjustments.
New hire reporting requirements
What is required
Every employer must report new hires and rehires to state and federal agencies. A rehire is any employee who returns to work after a separation of at least 60 days.
Check supports its Partners by handling this reporting on behalf of the companies they onboard.
Why it matters
New hire reports help federal and state agencies enforce child support and manage benefits like unemployment insurance and food assistance.
Timeline
- Employers must report new hires within 20 days of the employee’s start date
- If reporting electronically, they must report twice monthly, 12 to 16 days apart (exact cadence varies by state)
Required information
Each report must include:
Field | Description |
Employee name | Full legal name |
Employee address | Residential address |
Social Security Number | Valid SSN |
Date of hire | First day of paid work |
Employer name | Company’s legal name |
Employer address | Company’s mailing address |
Employer EIN | Federal Employer Identification Number |
State-specific fields | As required by the employee’s work state |
Recording
Last updated on June 6, 2025