Contractor or Employee? Determining the Fine Line Between the Two

• By: admin
• On: 02/15/2025 11:31:19
• In: Contract Auctioneers

Are you thinking about stepping into the shoes of a contract auctioneer? While it can be a highly rewarding career, there are also many potential legal and tax headaches in the waiting if you're not clear on whether you're an employee or an independent contractor.

Fortunately, Addison Russell, an attorney from an auction family who once held an auctioneer's license, offers some sage advice to NAA members. Russell practices law in Nashville, where she serves as legal counsel for the Tennessee Realtors Association and has a government relations practice with clients that include the Tennessee Auctioneers Association.

Different states have different statutes, so Russell always recommends that auctioneers ask their attorney or tax professional questions about local laws. However, she has some guidance regarding understanding the difference between independent contractors and employees. The two most common tests to determine the difference between the two are the ABC test and the IRS 20 factor test, which is also referred to as the common law test and the right-to-control test. “Some states have developed their own test that are kind of a compilation of the 20 factors test,” she added.

The ABCs of Independent Contractors

Using the ABC test, a governing body would look at three factors in determining whether an auctioneer is an independent contractor or an employee. The legal language can be tough to follow and not always 100 percent clear, but under the A in the ABC test, it says the individual, and in all of these, it is assumed the “individual” is an independent contractor, “has been and will continue to be free from control and direction in connection with the performance of the service, both under any contract for the performance.”

“This is kind of tricky,” Russell said. “When we're talking about contract auctioneers, they're not always free from control and direction. The auction company may be telling you what you can wear, what day you need to be there, and what hours you need to be there.”

The second component of the ABC test says the service is performed either outside the usual course of the business for which the service is performed or is performed outside of all the places of business of the enterprise for which the service is performed. Russell said that because most contract auctioneers are traveling to different places, this section is more transparent. And the third (C) component says the individual is “customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.” As with the second component, independent contractors working should have little problem meeting this description.

The 20-Factor Test

There is some obvious crossover between the two tests, as they are designed to establish basically the same things, but the 20-factor test gets deeper into the details.

For example, if the company an independent contractor is working for pays for the auctioneer's assistant or secretary, “then you're deemed an employee,” Russell says. “But if you're allowed to bring in your own assistants or subcontractors, then you fall into the independent contractor (definition).”

Another factor is how an auctioneer is paid. When paid by the hour, week, or month, this structure is often considered more closely aligned with that of an employee, whereas an independent contractor is paid a commission or per job.

Many independent contractors travel far and wide for work, but how is it paid for? “If they pay your travel expenses,” Russell said, “that's employee-leaning. But if you pay your own travel expenses, that's independent contractor-leaning.”

Russell points out that while the guidelines seem mundane, they are important to employers who hire independent contractors, thereby avoiding providing them benefits, such as workers' compensation or unemployment.

“For the contract auctioneer,” she said, “this is important for your tax liability. Again, discussing your business method with your tax professional is probably the best way to go.” 

This article is based on a session from the NAA's 2023 Conference & Show entitled "Have Gavel, Will Travel: Legal Basics for the Contract Auctioneer." Watch it now on The Auction Institute®.