Rev. Rul. 70-630

The purpose of this ruling is to update and restate, under the current statute and regulations, the position set forth in S.S.T. 377, C.B. 1939-2, 288.

The question presented is whether salesclerks trained by an employee service company and furnished to a retail store to perform temporary services for the store are employees of the service company or of the retail store for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages (chapters 21, 23, and 24, respectively, subtitle C, Internal Revenue Code of 1954).

The service company was formed for the purpose of training salesclerks and other temporary personnel and furnishing them to retail establishments that may require the services of additional salesclerks during special sales and other periods of demand. Upon request of a store for a certain number of salesclerks, the company trains individuals to perform sales services in conformity with the established procedure of the store. The company places a supervisor in each store to which salesclerks are furnished. It is the duty of the supervisor to determine whether the clerks have been properly assigned to the respective departments in the store for which they were requested, and to see that they are neat in appearance and dressed in accordance with the store's regulations. The supervisor makes periodic reports to the company showing the number of hours each clerk works and the number of sales made. Each salesclerk is required to forward to the company a weekly time card for payroll purposes after it has been approved by the store. The salesclerks are subject to the instructions and control of the supervisor and are not under the supervision of the store while performing their services. The store does not have the right to demand any particular salesclerk, but is required to accept the clerks assigned to it. However, it is the policy of the company to furnish the best clerks available, and if the services of any clerks prove to be unsatisfactory, the store may request the company to remove those particular clerks. The clerks are not subject to discharge by the store but the company may discontinue their services at any time. The working hours established by the company conform to those of the store and are maintained in accordance with the company's instructions. The company carries public liability, workmen's compensation, and employers' liability insurance on the salesclerks. The store pays the company a stipulated amount for the services furnished and the clerks receive a standard wage directly from the company.

An individual is an employee for Federal employment tax purposes if he has the status of employee 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, 31.3306(i)-1, and 31.3401(c)-1. As stated in the regulations, generally the relationship of employer and employee exists when the person for whom the 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 employee 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 the employer.

The facts in the instant case show that the employee service company has the right to direct and control the salesclerks to the extent necessary to establish the relationship of employer and employee under the usual common law rules. Accordingly, it is held that the salesclerks are employees of the employee service company for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages.

S.S.T. 377 is superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

¹ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.