Six Factors to Evaluate Employee Vs. Independent Contractor

Why It Matters

These distinctions shape legal classification, tax obligations, and liability for employers, affecting payroll costs and compliance risk; misclassification can trigger penalties and back taxes. Understanding the multifactor test helps businesses structure engagements to match intended legal and financial responsibilities.

Summary

The video outlines six additional factors used to determine whether a worker is an employee or an independent contractor, emphasizing that decisions rest on the totality of circumstances. Key factors include the worker’s opportunity for profit or loss, investments by worker and employer, and the permanence of the working relationship. It also covers the degree of control exercised by the hiring party, whether the work is integral to the employer’s business, and the worker’s skill and initiative. Practical examples—cleaning services with low control versus architects with high skill and autonomy—illustrate how the factors point toward contractor or employee status.