Misclassifying employees as independent contractors is one of the biggest pitfalls in employment law, and it’s an issue that both employers and workers need to understand. Getting it wrong can mean serious legal and financial consequences. So, what’s the difference, why does it matter, and how can businesses avoid costly mistakes?
Employee vs. Independent Contractor: What’s the Difference?
At its core, the distinction between an employee and an independent contractor comes down to control. Employees are subject to their employer’s control over how, when, and where they work. Independent contractors, on the other hand, typically operate their own businesses and control how they complete their work.
The Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL) use different tests to determine worker classification:
- IRS Test: Focuses on three primary factors—behavioral control, financial control, and the relationship between the parties (IRS Publication 15-A).
- DOL’s Economic Realities Test: Evaluates factors such as the degree of control, the worker’s opportunity for profit or loss, and the permanency of the work relationship (29 C.F.R. § 800.110).
- West Virginia Law: The state follows the common law test similar to the IRS approach, but courts may also consider economic dependence when deciding cases.
