An independent contractor is operating their own business and is not an employee of the firm that contracts with them. They typically handle their own tax obligations and business compliance. Tax rules and other legal considerations for sole proprietors and entities are discussed in the “Choosing the Form of Business Organization – Tax and Non‑Tax Considerations” section of this Guide. The question of whether a worker is an employee or an independent contractor may be determined by common‑law rules (developed by the courts) or by statute. A person may be an employee for some purposes but not others. Because misclassification is costly, employers should seek professional advice whenever doubt exists. COMMON LAW EMPLOYEES Under common law, courts and agencies weigh multiple factors to determine whether an employer‑employee relationship exists. The most important factor is the hiring entity’s right to control the manner and means by which the work is performed. Even if a worker has significant day‑to‑day freedom, an employment relationship may exist if the business retains the legal right to direct how the work is done as well as the result. Other factors that may be considered include: • Mode of payment . Workers paid on a regular, recurring basis (hourly, weekly, biweekly, monthly) with tax withholding and benefits are more likely to be employees than individuals paid a flat amount per project, regardless of time spent. Providing fringe benefits such as medical insurance is also characteristic of an employer‑employee relationship. • Materials, tools, and equipment . A person who furnishes and maintains their own tools, equipment, and materials and has a significant investment in those items is less likely to be an employee than someone who mainly uses tools, equipment, and materials furnished by the hiring entity. • Control of premises . An employment relationship is more likely where the hiring entity owns or controls the location where the work is performed. Work performed at premises owned or controlled by the service provider or a third party is more typical of an independent contractor relationship. • Right of discharge / right to quit . If the hiring entity can terminate the worker at will, and the worker can leave before completion of the task without being liable for nonperformance under a contract, these facts favor finding an employment relationship. Independent contractors are more likely to have their rights and obligations defined by a contract, including consequences for early termination. No one factor is determinative. The right to control the manner and means of the work is the primary consideration, but all relevant facts are evaluated together. If an employment relationship exists, legal obligations apply regardless of what the parties call the worker, how payments are measured or made, or whether the person works part‑time or full‑time, unless a specific statutory exception applies.
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