Employee vs Independent Contractor

Updated: Apr 17

A common concern small businesses and nonprofits have is whether they should hire someone as an employee or independent contractor. It is tricky and getting it wrong can have negative consequences.


I have combined some of the main requirements for a worker to be classified as an independent contractor by the US Department of Labor, the IRS, and agencies within Washington State.


The key takeaways are:

  1. You cannot tell an independent contractor when, where, or how to conduct its business.

  2. You cannot have or exert any financial control over the worker.

  3. The worker must be their own established business. None of the worker’s business can occur at your place of business.

  4. A permanent relationship, or long-term relationship, can imply the worker is more akin to an employee.

  5. The services the worker provides should not be key to the business that hires the worker.

The last point is generally an area of concern. Using someone to work on something that is a primary focus of your company could trigger additional scrutiny by both state and federal agencies. If any of those agencies finds you have improperly classified workers as independent contractors, you could be held liable for large payments of back-taxes, penalties, and other fines.

How would you classify your business? Do you think your worker’s involvement would be an essential part of that definition?




The information provided on my blog is not legal advice and should not be relied on as legal advice. Anyone reviewing this post should use it as only a first step in understanding the differences between an independent contractor and an employee in Washington State. Employers should consult with a lawyer before making any decisions.


Helpful Links:

https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-defined

https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation

https://esd.wa.gov/employer-taxes/independent-contractors

https://lni.wa.gov/insurance/insurance-requirements/independent-contractors/#6-part-and-7-part-tests

https://www.dol.gov/agencies/whd/fact-sheets/13-flsa-employment-relationship

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