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Independent Contractor
Practical Law Glossary Item 6-502-8864 (Approx. 4 pages)
Glossary
Independent Contractor
An individual or business that contracts with another person or entity to provide goods or services in exchange for compensation. Independent contractors are not employees and are generally not entitled to the same rights and protections extended to employees, including:
- Employee benefits plans, such as health insurance.
- Employee fringe benefits, such as paid vacation.
- Federal, state, and local income tax withholding.
- Unemployment insurance coverage.
- Workers' compensation coverage.
- Wage and hour standards, such as minimum wage and overtime pay.
- Protection from workplace discrimination and harassment.
A number of tests exist to determine independent contractor status, including:
- The test provided under the Fair Labor Standards Act (FLSA), as interpreted by federal courts and the Department of Labor (DOL).
- The test used by the Internal Revenue Service (IRS).
- State and local standards.
Factors commonly considered when making an independent contractor determination include:
- Which party controls how the work is performed, such as methods used and hours worked.
- Which party provides the necessary tools, equipment, or materials.
- Whether the independent contractor is free to perform work for other customers.
- How the independent contractor is paid, such as by the hour or by the project.
For more information on independent contractors, including how to determine whether a worker is an independent contractor, see Practice Note, Independent Contractor Classification and Evaluating and Engaging Independent Contractors Checklist. For more information on independent contractors under state law, see Independent Contractors: State Q&A Tool.