Employee or independent contractor: how to tell

Not by what you call them, and not by what they agree to.

Classification follows the actual relationship. A signed contract saying "independent contractor" is evidence, not an answer.

What actually gets examined

Control. Do you direct how the work is done, or only what result you want? Set hours, required methods, and required locations point toward employment.

Integration. Is the work core to your business or ancillary? A bookkeeper for a bakery looks different from a baker.

Economic reality. Does this person have other clients, their own tools, their own business? Someone working only for you, using your equipment, looks like an employee.

Permanence. Ongoing and indefinite points toward employment. Project-based points the other way.

Different agencies weigh these differently, and state tests can be stricter than federal ones.

Why it matters more than people think

Misclassification exposure includes back payroll taxes, penalties and interest, unpaid overtime, unemployment and workers' compensation contributions, and benefits the person should have received.

It compounds across every worker classified the same way and across every year.

How it usually surfaces

Not through an audit. Through a worker filing for unemployment after you end the arrangement, and the agency asking why no contributions were made.

Where people go wrong

Treating classification as a cost decision. Using a contractor agreement as though the document controls. Classifying identically-situated workers differently. Converting an employee to a contractor for the same work.

What to do

For each person you pay who isn't on payroll, ask: do I control how they work, is this core to my business, and do they have other clients?

If the answers point toward employment, fix it going forward. Voluntary correction is far better than being told.

This is general information, not legal advice for your situation. If you want an answer for your business, book a consultation.