USA compliance for independent contractors

Federal (IRS): Worker status is evaluated under common-law rules across three categories — behavioral control, financial control, and the relationship of the parties. The IRS points businesses to Publication 1779, Pub 15-A, and Form SS-8 for determinations and offers the Voluntary Classification Settlement Program (VCSP) as a remediation path. Federal reporting: Use Form 1099-NEC to report nonemployee compensation. Follow IRS filing deadlines and the instructions for Forms 1099-NEC and 1099-MISC. Federal (DOL): For FLSA purposes the DOL’s guidance (Fact Sheet #13) sets out the “economic reality” factors to determine if a worker is an employee under the FLSA; enforcement positions can change with administration guidance and Field Assistance Bulletins. State variation: Many states have adopted the ABC test (or variants) which is stricter than the IRS common-law test; California codified the Dynamex ABC test via AB5. NCSL maintains a state-by-state summary of which test each state uses and statutory/case-law trends; more than 30 states use ABC-like tests as of recent summaries. Workers’ compensation/unemployment/tax: State rules differ — some states treat certain contractors as subject to unemployment contributions or workers’ comp obligations based on test outcomes or specific statutory definitions. Misclassification exposes businesses to payroll tax liabilities, back wages, benefits contributions, penalties, and interest at both federal and state levels. Practical compliance steps: maintain written contractor agreements that reflect actual control and independence; avoid treating contractors like employees (no set schedule, no employee benefits, permit them to work for others); collect W-9s; issue 1099-NEC where required; run regular classification audits; consider Form SS-8 requests or VCSP if remediation is necessary; implement strong onboarding, payment, and IP assignment clauses; consult state labor/tax agencies for state-specific rules.