Contractor or employee? How to tell, for small businesses in Idaho

Hiring help for your shop or lot: the IRS's three tests, why Idaho's unemployment and workers' compensation rules lean toward "employee", and where to get a free answer before you decide.

Calling someone a contractor doesn't make them one. What decides it is how the work really happens. Getting it wrong can mean back taxes, penalties and uninsured injuries, so it's worth settling before the first day.

The IRS: who controls the work?

The IRS's general rule: a worker is an employee if you have the right to control what they do and how they do it, even if you don't always use that right. It looks at three kinds of evidence, and no single one decides:

Behavioral: do you tell them how, when and where to do the work, or train them in your way of doing it?
Financial: do you supply the tools and the place, reimburse expenses, and pay by the hour or week? Can they make or lose money on the job?
The relationship: is it ongoing, is the work a key part of your business, and are there employee-type benefits?

Idaho leans toward "employee"

Unemployment insurance (Idaho Code 72-1316): work is presumed to be employment unless the business shows the worker is free from its control, in the contract and in practice, and is in an independently established business of their own
Workers' compensation (Idaho Industrial Commission): a "right to control" test looking at direct control, how they're paid, who supplies the major equipment, and whether either side can end it without liability. When it's in doubt, it's resolved in favor of employee

Signs someone really is a contractor

Their own registered business, insurance and tools
They set their own hours and methods, and can turn jobs down
They work for other clients too
They send you invoices, and you pay for results rather than hours

If you'll be setting their schedule, showing them how to do the work and supplying everything, plan on payroll: withholding, workers' compensation and unemployment insurance.

The paperwork

Employees: Form W-4 for withholding and Form W-2 at year end
Contractors: Form W-9 before you pay them, and a 1099 information return at year end when your payments pass the IRS reporting threshold (check the current amount on the IRS website)
Keep a short note of why you decided the way you did. The IRS suggests documenting each factor you considered

Not sure? Ask, for free

The IRS will make a determination if you file Form SS-8, but it can take six months or more
The Idaho Small Business Development Center offers free, confidential advising
An accountant or employment attorney can look at your exact situation

Source: IRS: Independent contractor or employee?. Updated October 2026.

General information in plain English, checked against the sources named when we wrote it. It isn't legal, tax or professional advice, and rules change: for your own business, check the official source or ask your accountant or attorney. See our website terms.