Questions:

• What is an independent contractor?
• What are the benefits of hiring independent contractors?
• What are the risks of hiring independent contractors?
• How do government agencies determine whether workers are ICs or employees?
• Should I ask freelancers and consultants to sign written independent contractor agreements?
• Is there anything I can do during the hiring process to make sure the worker I hire is really an independent contractor?
• Once I hire an IC, are there steps I can take to avoid classification problems with government agencies?
• Who owns intellectual property created by independent contractors?

Answer:

How do government agencies determine whether workers are ICs or employees?

There is no single, clear-cut test for deciding whether a worker classified as an IC is actually an employee. Different legal tests are used by various government agencies, including:

• the Internal Revenue Service
• state unemployment compensation insurance agencies
• state workers' compensation insurance agencies
• state tax departments
• the United States Labor Department, and
• the National Labor Relations Board.

Each of these agencies is concerned with worker classification for different reasons, and has different rules and practices. Each agency normally makes classification decisions on its own and need not consider what other agencies have done, which means that one agency may find that a worker is an IC while another decides that he or she is an employee. It's also possible, though rare, for a worker to be deemed an IC in one state and an employee in another.

To find out the rules these agencies use, see Independent Contractor or Employee: How Government Agencies Make the Call.