Definition: An independent contractor is a worker who operates their own business and provides services to clients, rather than working as an employee. Under federal labor law, the key question is whether the worker is economically dependent on the company for work or is in business for themself.
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Many businesses use contractors for specialized or project-based work. The classification matters because employees and contractors are treated very differently under wage, tax, and benefits laws. Classifying an employee as a contractor can lead to unpaid overtime, back taxes, and penalties. The label in a contract does not decide the question; the working relationship does.
There is no single federal test. Two of the most important for employers are:
States may apply their own tests for wage laws, unemployment insurance, and workers' compensation, and some of these are stricter than the federal tests.
The Department of Labor's Fact Sheet #13 asks whether the worker is "economically dependent on the employer for work" or is "in business for themself." It lists six factors and says "no single factor determines a worker's status":
The fact sheet also states that "what the worker is called is not relevant," that signing an independent contractor agreement "does not make a worker an independent contractor under the FLSA," and that receiving a Form 1099 is not necessarily proof of contractor status. It notes that minimum wage and overtime protections apply only to employees: "Independent contractors do not have these protections."
The fact sheet notes that its guidance reflects a 2024 rule that is the subject of ongoing litigation, and it points readers to a February 2026 proposed rulemaking and Field Assistance Bulletin 2025-1 for the agency's current enforcement position. Check the Department of Labor's website for the latest status before relying on any specific test.
The IRS's independent contractor guidance groups evidence into three categories:
| Category | What the IRS looks at |
|---|---|
| Behavioral | Whether the company controls or has the right to control what the worker does and how the worker does the job |
| Financial | Whether the business aspects of the job are controlled by the payer, such as how the worker is paid, whether expenses are reimbursed, and who provides tools and supplies |
| Type of relationship | Written contracts, employee-type benefits, whether the relationship is expected to continue, and whether the work is a key aspect of the business |
The IRS says, "Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor."
| Area | Employee | Independent contractor |
|---|---|---|
| Minimum wage and overtime (FLSA) | Covered if non-exempt | Not covered |
| Federal income tax withholding | Employer withholds | Generally not withheld |
| Social Security and Medicare | Employer withholds employee share and pays employer share | Generally not withheld or paid by the business |
| Federal unemployment tax | Employer pays | Not paid by the business |
| Form I-9 | Required for each person hired for employment | Not part of an employee hire |
The tax rows reflect the IRS's description: for employees, the employer generally withholds income taxes, withholds and pays Social Security and Medicare taxes, and pays unemployment tax; for independent contractors, the business generally does not withhold or pay taxes on their payments.
According to the IRS, a business that classifies an employee as an independent contractor with no reasonable basis may be held liable for employment taxes for that worker. Relief may be available if the business had a reasonable basis and filed all required information returns consistently with its treatment of the worker. The IRS also describes the Voluntary Classification Settlement Program (Form 8952), which allows eligible businesses to reclassify workers as employees for future tax periods with partial relief from federal employment taxes, and Form 8919, which workers can use to report uncollected Social Security and Medicare taxes.
Under the FLSA, a misclassified worker who is actually a non-exempt employee is owed minimum wage and overtime for hours worked. That makes accurate time records important even when classification is uncertain.
A commercial cleaning company pays a worker as a "contractor" at $20.00 per hour. The company sets the worker's schedule, assigns specific buildings, provides all supplies and equipment, requires a uniform, and the worker cleans only for this company. Cleaning is the company's core service. Under the factors described above, many point toward employee status: control, the employer's investment, permanence, and the work being integral to the business. If the worker is in fact an employee and worked 48 hours in a week, the worker would be owed 8 overtime hours at $30.00, or $240.00, in addition to straight-time pay for 40 hours.
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This is general information, not legal or tax advice.
No. The Department of Labor says signing an independent contractor agreement does not make a worker an independent contractor under the FLSA, and that what the worker is called is not relevant. Status depends on the actual working relationship.
The IRS looks at evidence in three categories: behavioral control, financial control, and the type of relationship. No single factor decides the question; businesses must weigh all the factors.
The IRS says either the business or the worker can file Form SS-8 to request an official determination, which may take at least six months. Many businesses also consult an employment attorney or tax professional.
No. The Department of Labor states that minimum wage and overtime protections apply only to employees, and independent contractors do not have these protections. Misclassified employees, however, are owed those protections.