Free tool · Labor and Employment Law
Employee or Independent Contractor?
Whether a worker is an employee or an independent contractor depends on the reality of the relationship, not on what the contract calls it, and on which test applies. The common-law test asks who has the right to control how the work is done. The economic reality test (for wage and hour law) asks whether the worker is economically dependent on the business or in business for themselves. The ABC test, used in California and some other states, presumes the worker is an employee unless the business proves that the worker is free from its control, does work outside its usual course of business and is customarily engaged in an independent trade. Tick the facts below to see how the three tests would treat the worker.
Tool · Employee or Independent Contractor?
The worker is probably an employee under most tests, so labelling them a contractor creates a misclassification risk.
Common-law control test: points to employee
The business has the right to direct and control how the work is done, which points to an employee.
- Right to control how, when and where the work is done (behavioural control).
- Who provides the tools, who bears expenses and whether the worker can profit or lose (financial control).
- Written contract, benefits, permanence of the relationship and whether the work is a key part of the business (relationship).
Economic reality test (FLSA): points to employee
The worker is economically dependent on the business, so is an employee for wage and hour purposes.
- The opportunity for profit or loss depending on managerial skill.
- The worker’s investment compared with the business’s.
- The permanence of the relationship, the nature and degree of control and whether the work is integral to the business.
- The skill and initiative required, and economic dependence.
ABC test (used by California and several other states): points to employee
A worker is presumed to be an employee unless the hiring business proves all three: (A) free from its control, (B) work outside the usual course of its business, and (C) customarily engaged in an independently established trade. Part A fails. Part B fails. Part C fails.
- A: the worker is free from the business’s control and direction.
- B: the work is outside the usual course of the hiring business’s business.
- C: the worker is customarily engaged in an independently established trade or business of the same kind.
- Employees are covered by minimum wage and overtime, payroll taxes and withholding, workers’ compensation, unemployment insurance, anti-discrimination law and, depending on the employer, benefits law.
- Misclassification can lead to back wages and overtime, back taxes, penalties and interest, liquidated damages and, in some states, personal liability for owners. A contract that calls someone a contractor does not decide it: the reality does.
- Different agencies and states apply different tests, and a worker can be an employee under one and a contractor under another.
Applies the three tests that decide whether a worker is an employee or an independent contractor: the common-law control test, the economic reality test used for wage and hour law, and the ABC test used in California and several other states. The tests differ, and a worker can be an employee under one and a contractor under another. Invented facts and simplified rules; a teaching aid, not legal advice. Runs in your browser; nothing is stored or sent.
How to use it
- Say who controls how, when and where the work is done, and who provides the tools.
- Say whether the worker has an independent business, a chance of profit or loss and an investment.
- Say whether the relationship is open-ended and the work is part of the business’s usual work.
- Read each test, and the consequences of getting it wrong.
Common questions
Does a contract that says ‘independent contractor’ settle it?
No. Courts and agencies look at the reality of the working relationship, and a label does not decide it.
What happens if a worker is misclassified?
The business may owe back minimum wage and overtime, payroll taxes, benefits and penalties, and in some states the owners can be personally liable.
Can a worker be an employee under one law and a contractor under another?
Yes. Tax, wage and hour, unemployment, workers’ compensation and anti-discrimination laws can use different tests.
Learn the law behind the tool
This tool is part of our Labor and Employment Law course, with lectures, concept maps, flashcards, interactive exercises and a capstone case. Labor and Employment Law: The Employment Relationship.
More free law tools
General information, simplified, mainly on American law, not legal advice. States and countries differ, and real cases turn on facts that a tool cannot capture.