Contractor or employee? How to tell
Getting worker classification wrong can mean back taxes and penalties. Here are the questions that decide it.
The short answer
It comes down to control. If you decide how, when and where the work is done, provide the tools, and the work is ongoing and central to your business, the person is more likely an employee. Some states, such as California, use a stricter test.
Behavioral control
Do you direct how the work is done, set hours and train the person? That points toward employee.
Financial control
Does the person invest in their own tools, set their own prices, work for other clients and risk a loss? That points toward contractor.
The relationship
Ongoing work that’s a core part of your business, with benefits or no end date, points toward employee.
State rules
Some states apply a stricter “ABC” test. In those states, a worker is presumed to be an employee unless all three conditions for contractor status are met.
Questions
What if I classified someone wrong?
Talk to a CPA quickly. The IRS has a Voluntary Classification Settlement Program that can reduce back taxes if you qualify and correct going forward.
Your situation isn’t general. A CPA can tell you how this applies to you.
Ask about thisGeneral information as of October 2026, not advice for your situation. Tax rules change; check with a professional before acting.