Independent Contractor Test
Definition
A legal framework to determine if a worker is an employee or a contractor.
What is the Independent Contractor Test?
It’s a set of criteria, like the IRS common law test or state ABC tests, that determines whether someone should be classified as an employee or an independent contractor. Misclassification can result in legal and financial penalties.
Why is the Independent Contractor Test Important for Employers?
- Misclassified contractors may be entitled to back pay, benefits, or taxes
- Triggers audits from the IRS, DOL, and state agencies
- Many states have tightened contractor laws (e.g., CA’s AB5)
FAQs
What is the independent contractor test used for?
It determines whether a worker is legally classified as an independent contractor or an employee, which affects taxes, benefits, and legal protections.
What are common tests used?
The most common are the IRS 20-factor test, the “economic realities” test (federal), and the “ABC” test (used in states like California).
What are the risks of misclassifying a worker?
Misclassification can result in back taxes, fines, benefit claims, and wage violations from the IRS, DOL, or state agencies.
How ExtensisHR Can Help
We help small and medium-sized businesses properly classify their workforce by:
- Using the latest legal criteria to review worker status
- Helping structure contractor agreements and onboarding
- Ensuring compliance across all 50 states and various industries