Date of Award

Spring 2004

Document Type


Degree Name

Doctor of Business Administration (DBA)


School of Accountancy

First Advisor

Ted D. Englebrecht


The correct classification of workers as either “employees” or “independent contractors” is important because the employer's legal responsibilities vary depending upon the nature of the working relationship. Further, the consequences of misclassification can be severe. For federal tax purposes, the term “employee” is not clearly defined in the Internal Revenue Code or Treasury Regulations.

The Supreme Court has ruled that when a statute does not specifically define the term “employee,” the common law should be applied. Revenue Ruling 87-41 and the court in In re Rasbury cite over twenty factors for consideration when assessing degree of employer control under common law. However, little insight exists as to how the court system combines these factors into an overall judgment of employment status.

The intent of this research inquiry is to build a parsimonious statistical model of significant factors used by the judiciary in differentiating employees from independent contractors for federal tax purposes. The research sample consists of 137 judicial decisions rendered in Federal District Courts and U.S. Tax Court from 1980 through 2003. Summary statistics indicate that 58 percent of the court decisions resulted in determinations of employee status and 60 percent of the cases were tried in the U.S. Tax Court.

A backward stepwise logistic regression procedure results in an eight variable model able to correctly classify 97.1 percent of the cases. Empirical findings in this study show that it is possible to differentiate between employees and independent contractors based on factors delineated in administrative and judicial rulings. Analysis of variable coefficients reveals that certain variables have a greater impact on the odds of obtaining an independent contractor status ruling. Further, the logistic regression model developed in the study is useful for predictive purposes.

Given that the study spans several decades and involves decisions from several judicial forums, the model is tested for temporal stability and stability between courts. The model appears to be stable over time and between venues. The findings of this study have practical implications for those subject to ambiguous worker classification laws as well as for the writers, enforcers, and interpreters of those laws.