When Is an Independent Contractor Really an Employee?

Many businesses, especially tech start-ups, fudge on legal distinctions to keep their labor costs low and cap their official employee count.

Q. My son works for a big tech company as a so-called independent contractor, but it seems to me that he’s really an employee in everything but title. He works only for that company, puts in very long hours and is closely supervised by company managers (albeit off-site). He doesn’t get employer-paid benefits, the firm expects him to pay self-employment taxes, and he won’t qualify for state unemployment relief if his contract isn’t renewed. This doesn’t seem right to me. What do you think?

A. It smells fishy to me, too. As you describe it, this relationship wouldn’t meet the IRS’s multipart test for legitimate independent-contractor status. Your son’s employer is running the risk that his job (and perhaps others at the firm) will be reclassified by the IRS as conventional employment, with penalties assessed for back employment taxes and perhaps overtime.

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Knight Kiplinger
Editor Emeritus, Kiplinger

Knight came to Kiplinger in 1983, after 13 years in daily newspaper journalism, the last six as Washington bureau chief of the Ottaway Newspapers division of Dow Jones. A frequent speaker before business audiences, he has appeared on NPR, CNN, Fox and CNBC, among other networks. Knight contributes to the weekly Kiplinger Letter.