Key Takeaways
- Behavioral Control: right to direct HOW work is done.
- Financial Control: opportunity for profit or loss.
- Type of Relationship: benefits, permanency, core function.
- No single factor is decisive—analyze entire relationship.
- Training and detailed instructions = employee.
- Significant investment + multiple clients = contractor.
Last updated: January 2026
Common Law Test
Why This Matters for the Exam
The three-category test is the framework for classification questions. Know the indicators for each category.
Expect at least 3-4 questions on the Common Law test.
The Three Categories
| Category | Key Question |
|---|---|
| Behavioral | Does business control HOW work is done? |
| Financial | Who has opportunity for profit/loss? |
| Relationship | What is the nature of the relationship? |
Behavioral Control Indicators
| Factor | Employee | Contractor |
|---|---|---|
| Instructions | Detailed | Minimal |
| Training | Required | None |
| Evaluation | How work is done | End result only |
| Tools/equipment | Provided by business | Own |
Financial Control Indicators
| Factor | Employee | Contractor |
|---|---|---|
| Investment | Minimal | Significant |
| Expenses | Reimbursed | Unreimbursed |
| Profit/Loss | Paid regardless | Can lose money |
| Market availability | One employer | Multiple clients |
Type of Relationship Indicators
| Factor | Employee | Contractor |
|---|---|---|
| Written contract | Less important | States non-employee |
| Benefits | Health, 401(k), PTO | None |
| Permanency | Indefinite | Project-based |
| Core function | Key to business | Ancillary |
Case Study
Scenario: Web developer Mark:
- Behavioral: Daily meetings, strict documentation style = High control.
- Financial: Monthly retainer, firm provides laptop = High control.
- Relationship: No other clients, indefinite = High control.
Result: Mark is an Employee.
On the Exam
Expect 3-4 questions on Common Law, typically:
- Factor Questions: "Which category does training fall under?"
- Classification Questions: "Based on these facts, employee or contractor?"
- Key Indicator: "What most strongly supports contractor status?"
The key is to remember: Behavioral = how. Financial = profit/loss. Relationship = benefits/permanency. Training = employee. Multiple clients = contractor.
Test Your Knowledge
Consultant: flat fee, pays own travel, chooses tools/hours. Strongest contractor factor?
A
B
C
D
Test Your Knowledge
Designer: weekly training, company workstation/software. Which category?
A
B
C
D
Test Your Knowledge
Worker performs "key aspect" of business operations. IRS leaning?
A
B
C
D