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  • Writer's pictureKathryn Bruns, CPA

Are you sure you're an independent contractor ?

The US Department of Labor (DOL) recently published an "official" rule document regarding the notion of "economic reality" for determining if a worker should be deemed an employee as opposed to an independent contractor. I've attached the monstrous document in case anyone has some extra time on their hands.

DOL - Employee vs Independent Contractor
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As a refresher (or base understanding), workers generally like to be classified as employees for tax purposes. This is because the employer bears the responsibility of payroll, tax withholding remittance, and 1/2 of the required "FICA" payroll taxes. Employers, on the other hand, would prefer to pay people as an independent contractors (for tax reasons). Not that tax considerations should drive all decisions, but a worker who is paid as an independent contractor may want to think about if they really should be classified as an employee instead.


Here are the six factors to consider when determining independent contractor versus employee, keeping in mind that overall, independent contractor status should tend to align more with someone that has their own business:


1. The worker’s opportunity for profit or loss

2. The relative investments by the worker and the employer

3. The degree of permanence of the work relationship

4. The nature and degree of control an employer has over the person’s work

5. Whether the work the person does is essential to the employer’s business

6. The worker’s skill and initiative


Finally, make sure the state you are in does not have a different set of tests than the one the DOL has. Most states will follow the DOL on these matters, but not all.



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