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# SECTION I: CORE PAYROLL CONCEPTS (29%)
## A. Worker Status Classification
### Question 1
Under IRS Common Law Rules, which factor is **PRIMARY** in determining whether a
worker is an employee or an independent contractor?
A. The worker's job title as designated by the employer
B. The worker's preference for classification status
C. The degree of behavioral control the employer has over how the work is performed
D. The worker's length of service with the company
**Correct Answer: C**
**Rationale:** Under the IRS Common Law Test, the key factor is **behavioral control**—
whether the employer has the right to direct and control how the worker performs the tasks.
While financial control and relationship factors are also considered, behavioral control
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(instructions, training, and supervision) is the primary determinant. Job titles, worker
preferences, and tenure do not determine classification status.
### Question 2
Which of the following workers is classified as a **statutory employee** for payroll tax
purposes?
A. A real estate agent working on commission
B. A licensed insurance agent selling life insurance primarily for one company
C. An attorney providing legal services to multiple clients
D. A freelance graphic designer with multiple clients
**Correct Answer: B**
**Rationale:** Statutory employees include certain categories of workers defined by statute,
including **licensed insurance agents who sell life insurance primarily for one company**.
Statutory employees are treated as employees for FICA tax purposes but may be treated as
independent contractors for other purposes. Real estate agents are statutory nonemployees,
attorneys and freelance designers are generally independent contractors.
### Question 3
An employer provides detailed instructions on how a worker must perform their job, requires the
worker to use company-provided equipment, and evaluates the worker's performance regularly.
Under the Common Law Test, this worker would MOST likely be classified as:
A. An independent contractor
B. A statutory employee
C. An employee
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D. A leased employee
**Correct Answer: C**
**Rationale:** Under the Common Law Test, behavioral control—including providing detailed
instructions, requiring use of company equipment, and conducting regular performance
evaluations—indicates an **employer-employee relationship**. Independent contractors
typically control their own methods, use their own equipment, and are not subject to regular
performance evaluations by the hiring entity.
### Question 4
Which of the following is **NOT** a factor in the IRS Reasonable Basis Test for worker
classification?
A. Reliance on a previous IRS audit of the employer
B. A published IRS ruling or court case involving similar circumstances
C. The worker's personal preference for independent contractor status
D. Industry practice treating similar workers as independent contractors
**Correct Answer: C**
**Rationale:** The Reasonable Basis Test allows employers to classify workers as independent
contractors if they have a reasonable basis, such as reliance on a prior IRS audit, a published
ruling, or industry practice. The worker's personal preference is **not** a valid reasonable basis
and does not provide protection from reclassification.
### Question 5
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A company hires a plumber to fix a leak in the office. The plumber sets their own schedule, uses
their own tools, and invoices the company after completing the work. This worker is MOST
likely classified as:
A. An employee
B. An independent contractor
C. A statutory employee
D. A temporary worker
**Correct Answer: B**
**Rationale:** Independent contractors typically control their own work methods, set their own
schedules, use their own tools, and invoice for services. The plumber's lack of behavioral and
financial control by the hiring company indicates independent contractor status under the
Common Law Test.
### Question 6
The IRS uses three main categories of evidence to determine worker status under the Common
Law Test. Which of the following is **NOT** one of these categories?
A. Behavioral control
B. Financial control
C. Type of business entity
D. Relationship of the parties
**Correct Answer: C**
**Rationale:** The three categories of evidence are: (1) **Behavioral control**—whether the
employer controls how work is performed; (2) **Financial control**—whether the employer
controls business aspects of the work; and (3) **Relationship of the parties**—how the parties
perceive their relationship. The type of business entity is not a factor in the Common Law Test.
# SECTION I: CORE PAYROLL CONCEPTS (29%)
## A. Worker Status Classification
### Question 1
Under IRS Common Law Rules, which factor is **PRIMARY** in determining whether a
worker is an employee or an independent contractor?
A. The worker's job title as designated by the employer
B. The worker's preference for classification status
C. The degree of behavioral control the employer has over how the work is performed
D. The worker's length of service with the company
**Correct Answer: C**
**Rationale:** Under the IRS Common Law Test, the key factor is **behavioral control**—
whether the employer has the right to direct and control how the worker performs the tasks.
While financial control and relationship factors are also considered, behavioral control
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(instructions, training, and supervision) is the primary determinant. Job titles, worker
preferences, and tenure do not determine classification status.
### Question 2
Which of the following workers is classified as a **statutory employee** for payroll tax
purposes?
A. A real estate agent working on commission
B. A licensed insurance agent selling life insurance primarily for one company
C. An attorney providing legal services to multiple clients
D. A freelance graphic designer with multiple clients
**Correct Answer: B**
**Rationale:** Statutory employees include certain categories of workers defined by statute,
including **licensed insurance agents who sell life insurance primarily for one company**.
Statutory employees are treated as employees for FICA tax purposes but may be treated as
independent contractors for other purposes. Real estate agents are statutory nonemployees,
attorneys and freelance designers are generally independent contractors.
### Question 3
An employer provides detailed instructions on how a worker must perform their job, requires the
worker to use company-provided equipment, and evaluates the worker's performance regularly.
Under the Common Law Test, this worker would MOST likely be classified as:
A. An independent contractor
B. A statutory employee
C. An employee
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D. A leased employee
**Correct Answer: C**
**Rationale:** Under the Common Law Test, behavioral control—including providing detailed
instructions, requiring use of company equipment, and conducting regular performance
evaluations—indicates an **employer-employee relationship**. Independent contractors
typically control their own methods, use their own equipment, and are not subject to regular
performance evaluations by the hiring entity.
### Question 4
Which of the following is **NOT** a factor in the IRS Reasonable Basis Test for worker
classification?
A. Reliance on a previous IRS audit of the employer
B. A published IRS ruling or court case involving similar circumstances
C. The worker's personal preference for independent contractor status
D. Industry practice treating similar workers as independent contractors
**Correct Answer: C**
**Rationale:** The Reasonable Basis Test allows employers to classify workers as independent
contractors if they have a reasonable basis, such as reliance on a prior IRS audit, a published
ruling, or industry practice. The worker's personal preference is **not** a valid reasonable basis
and does not provide protection from reclassification.
### Question 5
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A company hires a plumber to fix a leak in the office. The plumber sets their own schedule, uses
their own tools, and invoices the company after completing the work. This worker is MOST
likely classified as:
A. An employee
B. An independent contractor
C. A statutory employee
D. A temporary worker
**Correct Answer: B**
**Rationale:** Independent contractors typically control their own work methods, set their own
schedules, use their own tools, and invoice for services. The plumber's lack of behavioral and
financial control by the hiring company indicates independent contractor status under the
Common Law Test.
### Question 6
The IRS uses three main categories of evidence to determine worker status under the Common
Law Test. Which of the following is **NOT** one of these categories?
A. Behavioral control
B. Financial control
C. Type of business entity
D. Relationship of the parties
**Correct Answer: C**
**Rationale:** The three categories of evidence are: (1) **Behavioral control**—whether the
employer controls how work is performed; (2) **Financial control**—whether the employer
controls business aspects of the work; and (3) **Relationship of the parties**—how the parties
perceive their relationship. The type of business entity is not a factor in the Common Law Test.
