Am I an Employee or an Independent Contractor? — In Plain Words

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Why the label matters

The IRS explains why classification matters this way: worker classification determines whether an employer must withhold income taxes and pay Social Security, Medicare taxes, and unemployment tax on wages paid to an employee. Businesses normally do not have to withhold or pay any taxes on payments to independent contractors. The earnings of a person working as an independent contractor are subject to self-employment tax.

The Department of Labor explains the stakes from its side: employees receive the protections of the FLSA, and independent contractors are in business for themselves and therefore are not covered by the FLSA. Fact Sheet 13 states that when an employer-employee relationship exists and the work is covered under the FLSA, the employee must be paid not less than the federal minimum wage ($7.25 per hour) and overtime pay of not less than one and one-half the regular rate of pay for all hours worked over 40 per week, unless a relevant exemption applies.

Those are two different sets of consequences, stated by two different agencies. This page keeps them separate, the way the agencies state them.

The IRS test — in the IRS’s own framing

Source for this whole section: IRS, “Understanding Employee vs. Contractor Designation,” FS-2017-09, July 20, 2017. The IRS frames this test as applying for federal employment tax purposes, where a business must examine the relationship between it and the worker.

The IRS general rule

“The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work, not what will be done and how it will be done.”

The IRS adds: “Small businesses should consider all evidence of the degree of control and independence in the employer/worker relationship. Whether a worker is an independent contractor or employee depends on the facts in each situation.”

Category 1: Behavioral Control

The IRS says a worker is an employee when the business has the right to direct and control the work performed by the worker, even if that right is not exercised. The IRS lists these behavioral control points:

• Type of instructions given, such as when and where to work, what tools to use, or where to purchase supplies and services. Receiving instructions of these types may indicate a worker is an employee.
• Degree of instruction. More detailed instructions may indicate that the worker is an employee. Less detailed instructions reflect less control, indicating that the worker is more likely an independent contractor.
• Evaluation systems. A system to measure the details of how the work is done points to an employee. A system measuring just the end result points to either an independent contractor or an employee.
• Training. Training a worker on how to do the job — or periodic or on-going training about procedures and methods — is strong evidence that the worker is an employee. Independent contractors ordinarily use their own methods.

Category 2: Financial Control

The IRS asks: does the business have a right to direct or control the financial and business aspects of the worker’s job? It lists these points to consider:

• Significant investment in the equipment the worker uses in working for someone else.
• Unreimbursed expenses. Independent contractors are more likely to incur unreimbursed expenses than employees.
• Opportunity for profit or loss is often an indicator of an independent contractor.
• Services available to the market. Independent contractors are generally free to seek out business opportunities.
• Method of payment. An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time, even when supplemented by a commission. Independent contractors are most often paid for the job by a flat fee.

Category 3: Relationship of the Parties

The IRS says the type of relationship depends on how the worker and business perceive their interaction with one another. It lists:

• Written contracts which describe the relationship the parties intend to create — although, the IRS states, a contract stating the worker is an employee or an independent contractor is not sufficient to determine the worker’s status.
• Benefits. Businesses providing employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay have employees. Businesses generally do not grant these benefits to independent contractors.
• Permanency of the relationship. An expectation that the relationship will continue indefinitely, rather than for a specific project or period, is generally seen as evidence that the intent was to create an employer-employee relationship.
• Services provided which are a key activity of the business — the extent to which services performed by the worker are seen as a key aspect of the regular business of the company.

What the IRS says happens if an employee is misclassified

The IRS states: “Classifying an employee as an independent contractor with no reasonable basis for doing so makes employers liable for employment taxes.” It adds that certain employers that can provide a reasonable basis for not treating a worker as an employee may have the opportunity to avoid paying employment taxes, and points to Publication 1976, Section 530, Employment Tax Relief Requirements, for more information.

The IRS also names the Voluntary Classification Settlement Program (VCSP), which offers certain eligible businesses the option to reclassify their workers as employees with partial relief from federal employment taxes.

The routes the IRS itself names

• Form SS-8, “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.” The IRS states that it can help employers determine the status of their workers using this form. This is the IRS determination route — this page does not replace it.
• Form 8919. The IRS states that workers who believe an employer improperly classified them as independent contractors can use Form 8919 to figure and report the employee’s share of uncollected Social Security and Medicare taxes due on their compensation.
• Publication 15-A, Employer’s Supplemental Tax Guide, which the IRS calls an excellent resource on this subject.

These are forms and publications named by the IRS as routes to an official answer or to reporting. This page contains no form and collects nothing.

The Department of Labor test — in the Department’s own framing

Sources for this whole section: U.S. Department of Labor, Wage and Hour Division, Fact Sheet 13, “Employee or Independent Contractor Classification Under the Fair Labor Standards Act (FLSA),” Revised March 2024; and the Department’s Small Entity Compliance Guide for the 2024 final rule. Both DOL pages were read on November 2, 2026. The DOL frames this test as applying under the FLSA only.

The DOL question: economic dependence

Fact Sheet 13 states that whether a worker is an employee or an independent contractor under the FLSA is determined by looking at the economic realities of the worker’s relationship with the employer:

“If the economic realities show that the worker is economically dependent on the employer for work, then the worker is an employee. If the economic realities show that the worker is in business for themself, then the worker is an independent contractor.”

The fact sheet states that the economic realities of the entire working relationship are looked at, and that employment under the FLSA is not determined by technical concepts or common law standards of control; it is broader than the common law standard often applied to determine employment status under other federal laws.

The Small Entity Compliance Guide states the same point this way: there is no single rule for determining whether an individual is an independent contractor or an employee for purposes of the FLSA; rather, an “economic reality test” looks to the facts of a situation, rather than assuming that a written label, contractual arrangement, or form of business decides if a worker is economically dependent on an employer.

The six factors of the DOL economic reality test

Fact Sheet 13 lists these six factors, which should guide the assessment (the rule text is at 29 CFR 795.110, per the fact sheet):

1. Opportunity for profit or loss depending on managerial skill. This factor primarily looks at whether a worker can earn profits or suffer losses through their own independent effort and decision making — for example, whether the worker negotiates their pay, decides to accept or decline work, hires their own workers, purchases material and equipment, or engages in efforts such as marketing or advertising to expand a business or secure more work. A worker who decides to work more hours or take on more jobs when paid a fixed rate per hour, day, or job is generally not exercising managerial skill like an independent contractor, even if those decisions may lead to more earnings.
2. Investments by the worker and the employer. This factor primarily looks at whether the worker makes investments that are capital or entrepreneurial in nature. Investments that support the growth of a business — including by increasing the number of clients, reducing costs, extending market reach, or increasing sales — weigh in favor of independent contractor status, and a lack of such investments weighs in favor of employee status. Costs to a worker of tools for a specific job, and costs that the employer imposes on the worker, are not capital or entrepreneurial investments that indicate independent contractor status. The worker’s investments are also compared with the employer’s investments, not only in dollar amounts: the focus is on whether the worker makes similar types of investments as the employer, even if on a smaller scale, or investments of the type that would allow the worker to operate independently in the worker’s industry or field.
3. Permanence of the work relationship. Work that is sporadic or project-based with a fixed ending date (or regularly occurring fixed periods of work), where the worker may make a business decision to take on multiple different jobs, indicates independent contractor status. Work that is continuous, does not have a fixed ending date, or may be the worker’s only work relationship indicates employee status. The fact sheet cautions that a lack of a long working relationship does not necessarily suggest independent contractor status unless it is because of the worker’s business decision; short-term jobs for multiple employers may be due to the seasonal or temporary nature of the work or industry, and therefore may indicate employee status.
4. Nature and degree of control. This factor primarily looks at the level of control the potential employer has over the performance of the work and the economic aspects of the working relationship — including whether the potential employer controls hiring, firing, scheduling, prices, or pay rates; supervises the performance of the work, including via technological means; has the right to supervise or discipline workers; and takes actions that limit the worker’s ability to work for others. More control by the potential employer weighs in favor of employee status; less control weighs in favor of independent contractor status. Control that is for the sole purpose of complying with a specific, applicable federal, state, tribal, or local regulation, rather than the employer’s own internal policies or customer standards, does not weigh in favor of an employment relationship.
5. Whether the work performed is integral to the employer’s business. Work that is critical, necessary, or central to the potential employer’s principal business indicates employee status. Work that is not critical, necessary, or central to the principal business indicates independent contractor status. This factor looks at whether the function performed is an integral part of the business, not whether any individual worker is an integral part of the business.
6. Skill and initiative. This factor primarily looks at whether the worker uses their own specialized skills together with business planning and effort to perform the work and support or grow a business. A worker who does not use specialized skills — for example, a worker who relies on the employer to provide training — indicates employee status. Both employees and independent contractors can be skilled, so being skilled by itself does not indicate one status or the other; the focus is on whether the worker uses those skills in connection with business-like initiative.

Fact Sheet 13 states the weighing rule plainly: all factors should be considered; no single factor determines a worker’s status, and no one factor or combination of factors is more important than the others. Instead, the totality of the circumstances of the working relationship should be considered. Additional factors may be considered as well, if they are relevant to whether the worker is in business for themself or is economically dependent on the employer for work.

Facts the DOL says do not decide the question

Fact Sheet 13 states that certain facts are not relevant to whether an employment relationship exists under the FLSA:

• What the worker is called is not relevant — a worker may be an employee under the FLSA regardless of the title or label they are given.
• A worker who is paid off the books or receives a 1099 is not necessarily an independent contractor.
• Agreeing verbally or in writing to be classified as an independent contractor — including by signing an independent contractor agreement — does not make a worker an independent contractor under the FLSA.
• The place where work is performed, whether a worker is licensed by State/local government, and the time or mode of pay do not determine whether a worker is an employee or an independent contractor under the FLSA.

The Compliance Guide adds, in its common questions: under the FLSA, a worker who is an employee cannot waive FLSA rights (such as minimum wage and overtime pay) by signing an independent contractor agreement.

What the DOL says happens if an employee is misclassified

The Compliance Guide states that if an employee is incorrectly classified as an independent contractor, the employer will be responsible for paying any unpaid wages owed to the employee under the FLSA, and may also have to pay liquidated damages in an amount equal to back wages, as well as civil money penalties; employers may also have to pay attorneys’ fees associated with litigation.

Where the DOL points readers with a specific case

The Compliance Guide states that for questions about the employment classification of a particular worker or group of workers, readers may contact their nearest Wage and Hour Division District Office. Fact Sheet 13 points readers to the Wage and Hour Division website and its toll-free information and helpline, 1-866-4USWAGE (1-866-487-9243). Fact Sheet 13 also states that it is for general information and is not to be considered in the same light as official statements of position contained in the regulations.

How the IRS framing and the DOL framing differ

The two tests are printed above separately on purpose. They are not the same test, and this page does not merge them. In each agency’s own framing:

• Different laws, different purposes. The IRS test is stated for federal employment tax purposes — withholding, Social Security and Medicare taxes, and unemployment tax. The DOL test is stated for FLSA purposes — whether the worker has the FLSA’s protections, such as minimum wage and overtime pay.
• Different core questions. The IRS general rule turns on the payer’s right to control or direct only the result of the work, versus what will be done and how it will be done. The DOL test turns on economic reality: whether the worker is economically dependent on the employer for work, or is in business for themself.
• Different structures. The IRS organizes its evidence into three categories — Behavioral Control, Financial Control, and Relationship of the Parties. The DOL organizes its analysis into six factors, considered under the totality of the circumstances, with no factor having predetermined weight.
• A worker can fall on different sides of the two tests. The DOL’s Compliance Guide states this directly, in its own words: “Yes,” an individual can be an employee for FLSA purposes even if they are an independent contractor for tax purposes. The guide explains that the IRS applies its own test (a version of the common law control test) for tax purposes; that the Department of Labor considers many of the same factors as the IRS; and that the economic reality test for FLSA purposes is based on the FLSA’s definition of “employ” — to “suffer or permit” work — which courts have interpreted to be broader than the common law control test. The guide’s conclusion: some workers who may be classified as independent contractors for tax purposes may be employees for FLSA purposes.
• Some surface details point different ways in the two framings. For example, method of payment is one of the IRS’s listed Financial Control points, while Fact Sheet 13 lists the time or mode of pay among the facts that do not determine status under the FLSA. That is another reason the two tests are kept separate on this page: a point that counts in one agency’s framing may be set aside in the other’s.

An honest note: the Department of Labor rule is in flux

What this page cannot do

• This page cannot tell you whether you, or a worker you hire, are an employee or an independent contractor. The IRS says status depends on the facts in each situation, and the DOL says the totality of the circumstances must be considered. Neither agency’s page gives a score, a checklist total, or a cutoff, and this page invents none.
• A written contract, a job title, or a Form 1099 does not settle the question under either framing printed above: the IRS says a contract stating the worker’s status is not sufficient to determine it, and the DOL says a label, an off-the-books payment, a 1099, or a signed independent contractor agreement does not make a worker an independent contractor under the FLSA.
• For an official IRS determination, the route the IRS itself names is Form SS-8. For a worker who believes they were improperly classified as an independent contractor, the route the IRS names for reporting the employee’s share of uncollected Social Security and Medicare taxes is Form 8919, and the place the DOL names for questions about a particular worker’s classification under the FLSA is the nearest Wage and Hour Division District Office.
• This page states no state rules. No state source was read for this page, and state tests — which can differ — are outside what this page covers.

General information only — not legal or tax advice. This page prints the IRS test and the Department of Labor test as those agencies state them. It does not decide any worker’s status.