Why it matters
Employees usually get rights like paid leave and protection from unfair dismissal, and employers pay employment taxes for them. If a worker is wrongly treated as a contractor, the business can face back taxes, interest, penalties and employment claims.
United States: the IRS common-law test
The IRS looks at the degree of control and independence, in three groups:
- Behavioural control: does the business control how the work is done?
- Financial control: who controls the business side, such as expenses, investment and the chance of profit or loss?
- Relationship: are there benefits, a written contract, and is the work a key part of the business?
The US Department of Labor and individual states also have their own tests for wage and hour purposes, and some states use a stricter “ABC” test.
United Kingdom: employment status and IR35
UK law has three statuses: employee, worker and self-employed. Separately, the off-payroll working rules (IR35) apply when a contractor works through their own intermediary, usually a limited company. Medium and large clients must decide the contractor’s status and issue a Status Determination Statement. Small clients leave the decision to the contractor’s company. HMRC’s free CEST tool gives a view on status.
European Union: national tests plus new platform rules
Each EU country decides employment status under its own law, and many presume employment when someone works under the client’s direction. The EU Platform Work Directive, adopted in 2024, adds a legal presumption of employment for people working through digital labour platforms where facts show control and direction. Member states have until late 2026 to bring it into national law.
Practical steps
- Write down how the work will actually be done, not just the contract label.
- Let genuine contractors control how, when and where they work, and send invoices.
- Avoid treating long-term contractors exactly like staff.
- Review status when a role changes.
- Take advice from an accountant or employment lawyer in the worker’s country.
Last updated: 12 October 2026
