Independent Contractor Classification

by Gabrielle Wirth, Dorsey & Whitney LLP, with Practical Law Labor & Employment

A Practice Note that provides guidance on the critical legal distinctions between independent contractors and employees. This Practice Note examines the benefits of engaging independent contractors, such as cost savings and workforce flexibility, while detailing the substantial risks and liabilities associated with worker misclassification. These consequences can include liability for unpaid wages and overtime, back taxes, and employee benefits. This resource outlines the various legal standards used to determine worker status, including the economic realities test under the Fair Labor Standards Act (FLSA), the Internal Revenue Service (IRS) control test, and state-specific frameworks like the "ABC test." It also addresses the evolving interpretation by the Department of Labor (DOL) and the broad impact of misclassification on compliance. This Practice Note offers key insights for navigating these complex tests to minimize the risk of costly penalties and litigation.