What is Independent Contractor?
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.
Classification Risk
Misclassifying employees as independent contractors creates substantial legal and financial exposure: back taxes (income tax withholding, payroll taxes, social security), unpaid benefits (health insurance, retirement contributions, paid leave), regulatory penalties, and potential class-action lawsuits. Recent regulatory trends: the US Department of Labor’s reclassification rules, California’s AB5, and EU platform-worker directives: have tightened the test for independent-contractor status. Companies relying heavily on contractor labor should periodically audit their workforce against current legal standards and convert misclassified workers proactively rather than facing surprise enforcement actions.
Contractor Status Under Turkish Law
In Türkiye, the distinction between an employment relationship and a contract for work (eser sözleşmesi) is shaped by the Social Security Institution (SGK), the Ministry of Labour and Social Security (ÇSGB) and labour court case law. The criteria are the relationship of dependency, whether the person works under instructions, working hours and place of work, and how the fee is paid. If the relationship is misclassified, all employment law obligations are triggered, including severance pay, notice pay and social security.
Actual Dependency, Not the Contract Label
Under Turkish employment law, the line between an independent contractor and an employee is drawn by actual dependency, not by the label on the contract. Working under instructions, being tied to fixed hours and a fixed location, using equipment provided by the company and economic dependency on a single client: once these elements accumulate, the relationship is treated as an employment contract whatever the contract is called. The consequences are retroactive SGK premiums, severance and notice pay liabilities and administrative sanctions. Embedded developers and long-term freelance arrangements at technology companies sit exactly on this line.
A protective structure rests on:
- genuine independence (multiple clients, the contractor’s own tools, a results-based scope of work);
- consistency between invoicing and tax registration;
- complete intellectual property assignment and confidentiality provisions in the service agreement;
- periodic checks that the actual working arrangement still matches the contract.
In due diligence, the contractor file is the first place where SGK risk is examined.
Sources. Internal Revenue Service (IRS).