TLDR:
An independent contractor is a self-employed individual or entity that provides services to clients under a contract, maintaining control over how they perform work, distinct from employees in terms of taxes and benefits.
Employee vs. Contractor
Misclassifying employees as contractors is a serious legal risk. Tests like IRS Common Law, ABC Test, and Borello determine proper classification.
Contractor Classification Tests
Misclassifying employees as independent contractors is one of the most costly compliance mistakes a startup can make. Several tests exist to determine proper classification. The IRS Common Law Test examines behavioral control (does the company control how work is done?), financial control (does the company control economic aspects of the worker’s job?), and type of relationship (are there written contracts, employee benefits, or permanency of relationship?). California’s stringent ABC Test presumes all workers are employees unless the company can prove the worker is free from control, performs work outside the usual business, and has an independently established trade or business.