Overview: Independent contractors offer benefits and risks. The benefits include avoiding certain taxes, legal liabilities and administrative challenges.
However, the risks can be great. Before filling a position with an independent contractor, it is essential to carefully consider the myriad factors that go into properly classifying a worker as an independent contractor. An independent contractor should qualify not only under the tax code, but also several other state and federal employment laws that may come into play. Inaccurately classifying someone as an independent contractor can set an employer up for costly enforcement actions.
Trends: The Internal Revenue Service, the US Department of Labor and state agencies are cooperating to enforce independent contractor misclassification.
Author: Michael Cardman, Legal Editor
Updated to reflect amendment to the New Mexico Human Rights Act regarding pregnancy discrimination and accommodations, effective May 20, 2020.
Updated to reflect the withdrawal of regulations listing retail establishments for purposes of the overtime exemption for commissioned salespersons, effective May 19, 2020.
Updated to reflect an amendment to the state veterans preference law, effective May 12, 2020.
Updated to reflect information on a decision concerning independent contractor classification under the state Unemployment Compensation Law.
Updated to reflect forthcoming amendment extending protections to interns.
Updated to reflect state notice-posting requirements, effective April 1, 2020.
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As recommended by the California Employment Development Department, employers can refer to guidance in various topic areas, including withholding taxes and unemployment insurance, in the California Employer's Guide, DE 44.
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HR guidance on legally classifying and managing independent contractors under federal tax and employment laws.