Derek Allen, a retired chartered professional accountant and former partner of a multi-national accounting firm, entered into a verbal agreement with SPI Partnership & Associates (SPI), a regional office of a national accounting firm, to provide his talent and energy in locating new clients and promoting the firm’s products to existing clients. As part of the agreement, Derek was responsible for contacting prospective and existing clients identified as targets by partners of SPI to promote the firm’s resources. Preliminary discussions and meetings with existing and prospective clients would take place in various places, including the offices of SPI or the client and in restaurants. Derek was reimbursed for certain expenses related to these promotional activities. He paid for all other expenses.

If Derek was able to gain some interest in SPI's services from a new client or an existing client, he would arrange a marketing meeting between the client and a partner of the firm. He was involved in the preparation and would attend the meeting with the client. In preparing for the meeting, Derek would direct the work of his assistants in the development of promotional material, such as PowerPoint presentations, flyers, and handouts. He would be in charge of the preparation process with input from the SPI partner and staff on the technical content and format of the meeting and/or presentation. SPI would pay the cost of the presentation materials, and provide all equipment including hardware and software necessary to complete the job.

Most of the work was done at SPI in whatever space was available, although Derek often worked from his office at home as well. Derek was responsible for hiring his own assistants.

Derek was paid $2,000 every two weeks, or $52,000 for a year, as a retainer or guarantee for his services. Under the agreement, he could not work for any other accounting firm. He was also paid an additional $8,000 for every successful marketing meeting resulting in a new client with billings of a minimum of $30,000 in a 12-month period from the date of the meeting or resulting in new work from an existing client with billings of a minimum of $40,000 in a 12-month period from the date of the meeting. He received nothing extra if a client meeting was unsuccessful or billings did not meet these targets. To be paid, he had to invoice the accounting firm. He reimbursed the accounting firm for its share of the premium for the medical plan in which he participated. He had no specific hours of work. He had no profit-sharing arrangement.

Required:

With specific reference to the appropriate tests and considering how the facts are related to these tests, determine whether the income earned by Derek from SPI Partnership & Associates for the year is income from employment or income from the business. (In other words, is Derek an employee or self-employed (an independent contractor)?) Be sure to consider both sides of the issue in detail.