Employee or independent contractor?
Whether someone is an employee or an independent contractor is one of the most consequential questions in U.S. employment law. Employees are covered by minimum wage and overtime rules, anti-discrimination laws, unemployment insurance and workers' compensation, and employers withhold their taxes and pay half of Social Security and Medicare. Contractors get none of that: they're paid on a Form 1099 instead of a W-2, pay self-employment tax and buy their own insurance.
Calling someone a contractor in a written agreement doesn't settle anything. Agencies and courts look at the actual relationship, and treating a worker as a contractor when the law says they're an employee is called misclassification. Korean law faces the same problem with special-type workers (특수형태근로종사자) such as insurance agents, home-study tutors and delivery drivers.
- Taxes
- IRS common-law control test
- Federal wages
- FLSA economic reality test
- Strict states
- ABC test
- Korean term
- 특수형태근로종사자 / 노무제공자
A delivery app driver is legally a contractor in one state and close to an employee in the next. The test a court uses often decides the answer before the facts do.
The main U.S. tests
- IRS common-law test: for federal taxes, the IRS groups evidence into behavioral control, financial control and the relationship of the parties, asking whether the business controls not just the result but how the work is done.
- Economic reality test: under the Fair Labor Standards Act (FLSA), the question is whether the worker is economically dependent on the business or truly in business for themselves, weighing opportunity for profit or loss, investment, permanence, control, whether the work is integral and skill.
- ABC test: the strictest approach presumes employment unless the business proves all three: (A) the worker is free from its control, (B) the work is outside the usual course of its business, and (C) the worker is customarily engaged in an independent trade.
Shifting federal rules
The U.S. Department of Labor has rewritten its FLSA guidance several times. A 2021 rule focused on control and profit opportunity, a 2024 rule returned to a broader totality-of-the-circumstances analysis, and in 2025 the Department said it would stop applying the 2024 rule in its own enforcement while reconsidering it. Courts still apply their circuit's version of the economic reality test.
Gig workers, Dynamex, AB5 and Prop 22
In Dynamex Operations West v. Superior Court (2018), the California Supreme Court adopted the ABC test for state wage orders. The legislature codified and extended it in Assembly Bill 5 (2019), with many industry exemptions. App-based ride and delivery companies then backed Proposition 22 (2020), approved by voters, which treats their drivers as contractors while guaranteeing minimum earnings per engaged hour, a health care stipend and accident insurance. The California Supreme Court upheld Prop 22 in 2024.
Other states such as Massachusetts and New Jersey use ABC tests for some laws, while many others rely on common-law control factors. Misclassification can lead to back wages, unpaid taxes and penalties, and both the IRS and state agencies audit it. Because most U.S. jobs are at-will employment, classification often matters more for benefits and pay than for job security.
- Nationwide Mutual v. Darden (1992)
- Common-law agency test applies when a statute's definition of employee is circular
- Dynamex v. Superior Court (2018)
- California adopts the ABC test
- Castellanos v. State of California (2024)
- Prop 22 upheld
How Korea handles it
Korea's Supreme Court decides whether someone is a worker under the Labor Standards Act by asking whether they provide labor in a subordinate relationship for wages, regardless of whether the contract is called employment, outsourcing or agency (2004다29736, 2006). Factors include who decides the work content, fixed hours and place, ownership of tools, whether the person can hire substitutes and whether pay is a fixed salary. In 2018 the court held that home-study tutors could be workers under the Trade Union Act even if not under the Labor Standards Act (2014두12598).
For social insurance, Korea took a different route from U.S. litigation: it named occupations by statute. From 2008 the workers' compensation act covered listed special-type workers with premiums split between company and worker, but opt-outs and a requirement to work mainly for one company left many uncovered. Opt-outs were restricted in 2021, and from July 2023 the act replaced the special rules with a broader "labor provider" category without the single-company requirement, covering many platform delivery and driving jobs. A Korean report on Independent Contractor Workers and Workers' Compensation in Korea: Special Rules for Delivery Drivers, Tutors and Insurance Agents explains the earlier system, and Why Social Security Benefit Rights Are Fragile in Korea: Protection From Assignment and Seizure, Adverse Changes, Limits and Waiver looks at the wider social insurance picture.
| United States | Korea | |
|---|---|---|
| Who decides | Courts and agencies, law by law | Courts for labor law; statute lists for insurance |
| Key test | Control, economic reality, ABC | Subordinate relationship |
| Workers' comp | State law; contractors usually excluded | Listed labor providers covered since 2008, widened 2023 |
| Gig drivers | Contractors under Prop 22 in California | Covered as labor providers for workers' comp |
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Criticism and debate
Supporters of strict tests say misclassification shifts business risk onto workers and lets companies avoid taxes that fund unemployment and injury insurance; injured contractors may have to fall back on personal injury law instead of no-fault workers' comp. Opponents say rigid tests destroy flexible work many people want and push freelancers out of jobs, which is why AB5 needed so many exemptions. A third view, popular in policy circles and close to Korea's approach, is to create a middle category or portable benefits that follow the worker across platforms. The broader contrast between case-by-case and statute-based solutions is covered in common law vs. civil law.
Before signing a contractor agreement, ask who sets your hours, prices and methods. If the answer is always the company, the label may not survive a legal challenge.
- What is the difference between an independent contractor and an employee?
- An employee works under the business's control and gets wage, tax and insurance protections; a contractor runs their own business and is responsible for their own taxes and insurance.
- What is the ABC test?
- A test that presumes a worker is an employee unless the business proves the worker is free from control, does work outside its usual business and has an independent trade.
- Are Uber and DoorDash drivers employees?
- It depends on the state and the law; in California, Prop 22 treats them as contractors with some guaranteed benefits, while other states and agencies have reached different results.
References and official sources
- Employee, Wex. Cornell LII
- Employee or independent contractor classification under the FLSA. U.S. Department of Labor
- Independent contractor, Wex. Cornell LII
- Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992). Cornell LII
- 산업재해보상보험법. 국가법령정보센터