Rev. Rul. 68-598

Advice has been requested whether certain individuals who perform services for a company under the circumstances described below are employees of the company for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages (chapter 21, 23, and 24, respectively, subtitle C, Internal Revenue Code of 1954).

The company operates a driving school that offers automobile driver training to the general public. It engages the individuals, under written agreements, to give driver training lessons in specified areas and pays them specified commissions for the services performed. Each driver instructor is trained by the company and, when giving driving lessons, is required to conform to basic standards established by it from time to time. The instructor agrees to give driving lessons only under the school's name, to charge a student no less than the minimum rate established by the company, and to turn over to the company a fixed percentage of fees collected by him.

The company furnishes the automobiles used for training students. The driver instructor pays the expenses of cleaning the vehicle used by him and for gasoline and oil. At the end of each day the instructor furnishes the company a record showing all the driver training given by him, the names of the students and the rates charged, and any amounts that are owed for lessons. The company may terminate an instructor's services if he fails to follow the standards established for training students, or for other reasons specified in the agreement. An instructor may terminate his services at any time, by giving appropriate notice to the company.

The driver instructors are employees for Federal employment tax purposes if they have the status of employees under the usual common law rules applicable in determining the employer-employee relationship. Guides for determining that status are found in three substantially similar sections of the Employment Tax Regulations, namely sections 31.3121(d)-1(c), 31.3306(i)-1, and 31.3401(c)-1. These sections provide, in part, that generally the relationship of employer and employee exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employees is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer.

The facts in this case show that the driver instructors perform personal services that are an integral part of the business conducted by the company. They are trained by the company and are required to conform to its training standards and use its name and equipment. They may be discharged by the company. They are not engaged in independent business enterprises that require the outlay of capital or the assumption of business risks.

Accordingly, since the company exercises, or has the right to exercise, over the driver instructors in the performance of their services the degree of direction and control necessary to establish the relationship of employer and employee, they are employees of the company for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages.