Rev. Rul. 70-309

Advice has been requested whether, under the circumstances described below, individuals who perform services as oil well pumpers for a corporation are its employees 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 corporation operates oil wells in areas located a considerable distance from its headquarters. It engages the oil well pumpers under written contracts. Each contract provides that the pumper will perform certain services for a fixed amount of remuneration per month based upon the number of oil wells serviced by him. The services performed consist of watching over the wells, turning on tanks, gauging tanks, and submitting periodic reports to the corporation. The contracts state that the pumpers are independent contractors. The pumpers provide their own transportation and small hand tools of minimal value.

The pumpers are not required to follow a fixed routine or to work prescribed hours; however, they are required to verify the status of production by submitting written reports to the corporation on a regular basis. Due to the distance between the oil wells and the corporation's headquarters, the pumpers seldom see its agents or other representatives. Major tools and similar items are furnished to the pumpers by the corporation. The corporation retains the right to discharge the pumpers at any time upon proper written notice.

The oil well pumpers 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 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. If the relationship of employer and employee exists, the designation or description of the relationship by the parties as anything other than that of employer and employee is immaterial. Thus, if such relationship exists, it is of no consequence that the employee is designated as an independent contractor.

The oil well pumpers in this case perform personal services pursuant to a continuing relationship created under a written agreement that is terminable at any time; their services are both necessary and incident to the business conducted by the corporation; and they are not engaged in an independent enterprise in which they assume the usual business risks. Although the pumpers perform the services away from the headquarters of the corporation and are not given day-to-day directions and instructions, the corporation has the right to exercise whatever control is necessary to assure proper performance of the services by them.

In United States v. Silk, 331 U.S. 704 (1947), Ct. D. 1688, C.B. 1947-2, 167, it was held that certain coal unloaders were employees, even though they provided their own picks and shovels and did not work regularly. They had no opportunity to gain or lose except from the work of their hands and simple tools, they worked in the course of the company's trade or business, and the company had the right to exercise all necessary supervision over their tasks.

The facts in the instant case show that the corporation exercises or has the right to exercise over the oil well pumpers in the performance of their services the degree of direction and control necessary to establish the relationship of employer-employee under the usual common law rules. Accordingly, the oil well pumpers performing services for the corporation under the circumstances described above are employees of the corporation for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages.