Glossary · Compliance
Independent Contractor Classification
The legal determination of whether a worker is an employee or an independent contractor, governed by varying federal and state tests.
Worker classification determines tax withholding, benefits eligibility, wage-hour protections, and liability exposure. Federal tests differ across the IRS (common-law control), DOL (economic realities), and NLRB. States layer their own tests on top.
Misclassification is one of the most common — and most expensive — small-employer compliance failures. PEOs commonly support classification review as part of onboarding and during periodic HR audits.
Related terms
- AB5 (California Independent Contractor Law)California statute codifying the ABC test for distinguishing employees from independent contractors, with limited statutory exemptions.
- FLSA (Fair Labor Standards Act)Federal law establishing minimum wage, overtime pay, recordkeeping, and youth-employment standards for private and public sector employment.
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