The IRS issued procedural guidance Wednesday regarding determinations by the Service that a worker is properly classified as an employee of an employer rather than an independent contractor.

The distinction carries significant employment law and tax ramifications. The latter include that a person for whom services are performed must withhold from employees’ wages and remit employment taxes (generally, Social Security or Railroad Retirement, Medicare, and unemployment taxes) and income taxes but has no such obligation with respect to individuals who are not considered employees, i.e., independent contractors. Employers must also pay a corresponding contribution on behalf of employees for Social Security and Medicare taxes.

Whether a worker is an employee generally is determined under common law rules for whether the person for whom the services are performed has the right to control and direct the worker in details and means by which the work is performed.