Legal compliance for consultants USA

Worker classification: Use IRS common-law factors (behavioral, financial, type-of-relationship) to assess employee vs independent contractor status; misclassification risks include employment tax liability and penalties. The U.S. DOL Wage and Hour Division issued a final FLSA rule (effective March 11, 2024) providing updated criteria and resources for classification under the FLSA; consult 29 CFR Part 795 and the DOL’s fact sheet and small-entity compliance guide. Federal reporting and tax: Nonemployee compensation generally must be reported on Form 1099-NEC; consult IRS Form 1099-NEC and its instructions and ensure consistent filing. Self-employed consultants are subject to self-employment tax (Social Security and Medicare) and must track and pay estimated taxes. State-specific: California’s AB5 (Labor Code §2750.3 and related sections) codifies the ABC test for many worker-classification questions and creates business-to-business and professional exceptions; CA enforcement allows AG and city attorneys to seek injunctive relief for misclassification. Other states have different tests and noncompete rules—consult state SOS, DOR, and DOL or labor-equivalent pages for each state you operate in. Business formation & licenses: Choose an appropriate structure (Sole proprietorship, LLC, S corp, etc.) with tradeoffs for liability and taxes; register your entity with the state before seeking an EIN; obtain any federal, state, and local licenses/permits required for your service area. Privacy & advertising: Consultants handling personal data should review CCPA/CPRA (California) and state privacy laws; in advertising and endorsements, follow FTC guidance on disclosures (material connections, truthful claims). Contracts and practical compliance: Use written engagement letters specifying scope, deliverables, payment, IP ownership, confidentiality, indemnities, and termination; maintain insurance (E&O/professional liability), and keep detailed records for tax and classification defense (contracts, invoices, marketing showing independent business).