Independent Contractor

An independent contractor is a worker who provides services to a business but is not an employee. The legal label matters because it determines who withholds tax, who owes overtime, who carries workers’ comp, and whether the worker can deduct business expenses.

Three tests, three regulators.

1. IRS common-law test (Rev. Rul. 87-41). The IRS still organizes the analysis around 20 common-law factors, now grouped into three categories per IRS Publication 15-A:

• Behavioral control — who decides how the work gets done?
• Financial control — who bears profit/loss risk; whose tools?
• Relationship type — written contract, benefits, permanence, integration.

No single factor controls. The 20-factor framework of Rev. Rul. 87-41 remains valid.

2. FLSA “economic realities” test (Department of Labor). Governs minimum wage and overtime. The DOL’s 2024 Final Rule (29 CFR Part 795) replaced a Trump-era rule with a six-factor totality-of-the-circumstances test. On February 26, 2026, the DOL announced — and on February 27 published in the Federal Register at 91 FR 9932 — a Notice of Proposed Rulemaking (Docket WHD-2026-0001) proposing to rescind the 2024 Rule and return to a streamlined two-core-factor test (control + opportunity for profit or loss). The 60-day comment period closed April 28, 2026. Until the proposal is finalized, the 2024 Rule remains in force for private FLSA litigation.

3. State ABC tests. California — Labor Code §2775 (codifying Dynamex Operations W., Inc. v. Superior Court, 4 Cal.5th 903 (2018)) — presumes employee status unless the hirer proves all three:

• (A) Worker is free from control,
• (B) Work is outside the hirer’s usual business, and
• (C) Worker is engaged in an independent trade.

Massachusetts (G.L. c. 149 §148B), New Jersey, and several other states have similar tests. Proposition 22 created a California-specific carve-out for app-based rideshare/delivery drivers.

“1099 employee” is not a category. A worker is either an employee (W-2, FICA withheld, eligible for unemployment) or an independent contractor (1099-NEC, files Schedule C, owes SE tax). The phrase “1099 employee” is shorthand that obscures the legal stakes — and the answer to “am I one?” can be different for federal income tax, FLSA, and state law all at once.

Worked scenario. Wesley delivers groceries for two app platforms and tutors high-schoolers on the side. For all three roles, he is treated as an independent contractor: he gets 1099s, files Schedule C, and pays SE tax. Whether California would reach the same conclusion under §2775 for the delivery work depends on Prop 22’s continued application; for the tutoring, the ABC test almost certainly classifies him as a contractor under prong B.