An independent contractor is a person, business, or corporation that provides goods or services under a written contract or a verbal agreement.
In the early 1990s, the IRS methodically began to look for employers who were misclassifying employees as independent contractors, and has since obtained billions of dollars in Social Security back taxes.
In 2011, the IRS and the Department of Labor entered into a memorandum of understanding in an effort to jointly increase worker misclassification audits.
[3] The United States Supreme Court has offered the following guidelines to distinguish employees from independent contractors: The IRS, for federal income tax, applies a "right to control test" which considers the nature of the working relationship.
In their framework, independent contractors retain control over schedule and hours worked, jobs accepted, and performance monitoring.
They also can have a major investment in equipment, furnish their own supplies, provide their own insurance, repairs, and other expenses related to their business.
Firms in the sharing economy such as Uber can gain substantial advantages via the misclassification of employees as independent contractors.
Wilma Liebman, former chairperson of the National Labor Relations Board, has observed that Canada and Germany have such protections in place for contingent workers.