Independent Contractor

What Is an Independent Contractor? An independent contractor is a worker who provides services to a client or company while maintaining control over how, when, and where the work is performed. Unlike employees, independent contractors operate their own business, pay their own taxes (including self-employment tax), and are not entitled to employee benefits. The distinction between employee and independent contractor status has significant legal, tax, and regulatory implications. ## Key Classification Factors The IRS and courts consider several factors, including: - Degree of control the company exercises over the worker's methods - Whether the worker provides their own tools and equipment - Whether the worker has the opportunity for profit or loss - The permanency of the working relationship - Whether the worker offers services to multiple clients - The degree of skill and independent judgment required ## Misclassification Risks Misclassifying employees as independent contractors exposes businesses to back taxes, penalties, overtime and minimum wage liability under the FLSA, workers' compensation and unemployment insurance obligations, and potential class action lawsuits. The Department of Labor, IRS, and state agencies actively investigate misclassification. Recent legal developments, including the ABC test adopted by several states, have made proper classification increasingly important.