Exempt Organizations: Who Is a Common Law Employee?


Under common law rules, anyone who performs services for an exempt organization is the organization’s employee if the organization can control what will be done and how it will be done. This is so even if the organization gives the employee freedom of action. What matters is that the organization has the right to control the details of how the services are performed.

To determine whether an individual is an employee or independent contractor under the common law, the relationship of the worker and the organization must be examined. In an employee-independent contractor determination, all information that provides evidence of the degree of control and degree of independence must be considered.

Facts to establish the degree of control and independence fall into three categories:  Behavioral control, financial control, and the type of relationship between the parties. Refer to Publication 15-A, Employer's Supplemental Tax GuidePDF, for additional information.

In general, anyone who performs services for an organization is an employee if the organization can control what will be done and how it will be done

Example: Donna Lee works full-time as an appraiser for a tax-exempt museum. Donna works five days a week, and is on duty in the museum's office on assigned days and times. Her appraisals and proposals are subject to the museum curator's approval. Lists of leads of prospective sellers of art belong to the museum. Because of Donna's experience, she requires only minimal assistance in appraising art and preparing proposals, and in other phases of her work.  In addition to paying Donna's wages, the museum pays the cost of health insurance and group-term life insurance for her.  Donna is an employee of the tax-exempt museum.

In this example, Donna Lee performs work that is assigned by the museum, and is subject to the museum curator's approval.  Thus, she is an employee.

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