An independent contractor is a worker who individually contracts with an employer to provide specialized or requested services on a project or as-needed basis. There is really no absolute definition of an independent contractor. The important distinction, from the point of view of an employer, is that an independent contractor is an individual who is performing services for the employer but who is not an employee. Courts and government agencies generally examine the nature of the relationship between workers and employers to determine a particular individual's status. Independent contractor status is generally characterized by an “arm's length” relationship between the worker and employer.
Consequences of treating an employee as an independent contractor. Independent contractors are not covered under numerous federal laws. Depending on the particular law, courts have applied different tests for determining whether an individual is an employee or an independent contractor.
Common-law test. The Internal Revenue Service (IRS)/common-law test has been used for the following laws:
• Federal Insurance Contributions Act (FICA)
• Federal Unemployment Tax Act
• Income tax withholding
• Employee Retirement and Income Security Act
• National Labor Relations Act
• Immigration Reform and Control Act
Economic realities test. Under the economic realities test, an employment relationship exists if an individual is economically dependent on a business for continued employment. The economic realities test has been used for the following laws:
• Title VII of the Civil Rights Act
• Age Discrimination in Employment Act
• Americans with Disabilities Act
• Fair Labor Standards Act
The U.S. Department of Labor (DOL) has ...