To understand the concept of the control test, you need to know a little about employment law, which, in the U.S., is closely connected to contracts. The control test is a way of testing an employment contract to determine who is or is not an employee of a company. The rights, responsibilities and benefits given to a party depend upon this test.
Definition of Control Test
According to Black's Law Dictionary, the definition of a control test is "a test to decide if someone is an employee or is self-employed, used for purposes of tax assessment." Webster's defines control in these terms as well: "the power to direct, manage, oversee and/or restrict the affairs, business or assets of a person or entity." These definitions combined with a review of employment status contribute to the control test.
Contract of Service Vs. Contract for Service
The control test makes the distinction between a contract of service and a contract for service. A contract of service is an employee-employer relationship, and a contract for service is one between a business owner and a contractor. In legal cases, the courts use the following questions to carry out the control test: Can the employer tell the employee what to do? In other words, does the employer control the employee? If the answer is yes, you have a contract of service and the person in question is an employee. Otherwise, you are dealing with someone contracted to perform a specific and limited service to the company, a contractor.
Control Test and Impact on Employees
While both types of individuals receive payment from the company and must pay income taxes, employees receive more as a result of their status. They can get company benefits such as health insurance, retirement plans and paid time off. Contractors must provide for these resources on their own. Labor statutes like the Unfair Dismissals Act apply to employees but not contractors.
The control test can be murky. One instance of where it can be ineffective is in situations involving temp agencies and so called “temp to permanent” hires. This type of employee can work for a company for weeks or years and not truly be an employee by the terms of the contract, but the control test would find them as such. Another instance is that of skilled workers in which the employer has no effective control over the employee. The person may play no role in the daily operations of the company. In this case, the terms of the contract will say that is an employee-employer relationship. The control test would not.