Webinar Recap | Classifying Employees vs Contractors – And How Getting It Right Matters

In March, Adams Keegan advisors Charles Rodriguez and Brandon Roland joined for a live discussion addressing one of the most prevalent and often misunderstood compliance questions managers encounter: Should this individual be classified as an employee or a contractor?

The conversation provided an analysis of real-world scenarios and common risk areas, explaining how to approach this issue consistently and with confidence. Key topics included what defines the independent contractor relationship, whether it is possible to transition from contractor to employee, and what documents are needed to justify the relationship.

Didn’t catch the webinar? View it here.

What defines an independent contractor relationship?
Independent contractor status is determined by the substance of the relationship, not the paperwork that follows it.

A 1099, W-9, LLC, or even a written agreement does not independently establish contractor status. Those documents are administrative outputs of the relationship, not the legal test itself. The starting point under most federal and state standards is that the worker is presumed to be an employee unless the business can justify otherwise.

The central question is whether the worker is in business for themselves or economically dependent on the company for work. Key indicators include:

• Who controls how the work is completed
• Whether the worker provides their own tools and equipment
• Whether they can realize a profit or incur a loss
• Whether they make their services available to other clients
• Whether the work performed is central to the company’s business

The responsibility for making that determination always rests with the business, not the worker’s preference.

What practices help or hurt the classification argument?
The strongest contractor relationships are built around purchasing a result, project, or deliverable, rather than directing the individual’s day-to-day work like an employee.

Practices that help support contractor status include:

• Paying a set fee for a defined scope of work
• Requiring the contractor to manage their own expenses
• Allowing the worker to control when and how the work is completed
• Maintaining a written agreement that clearly outlines deliverables and independence
• Ensuring the worker is free to perform services for other clients

By contrast, certain routine practices can quickly weaken the argument:

• Reimbursing mileage or recurring business expenses
• Requiring fixed schedules or full-time exclusivity without a defined project end
• Providing employee handbooks, offer letters, or uniforms
• Conducting employee-style performance reviews
• Including contractors in employee-only functions, policies, or benefits

The more the relationship resembles employment in practice, the harder it becomes to defend the classification, even if the agreement says otherwise.

When should the relationship be reevaluated?
Business relationships change over time. As organizations grow, restructure, or expand into new service areas, a classification that once made sense may no longer fit the reality of the work, which is why periodic review matters.

Reassessing the relationship does not automatically suggest something was previously done incorrectly. In many cases, evolving business circumstances or regulatory changes create a natural opportunity to tighten documentation, remove practices that create unnecessary risk, or transition the individual into employee status moving forward. The key is to align the classification with how the relationship functions today.

The session concluded with practical employer questions around whether workers can waive classification rights, when former employees can legitimately return as contractors, whether payment thresholds change the analysis, and how to respond when a contractor files for unemployment — reinforcing the value of regular review, clear documentation, and good-faith decision-making.

Watch the full recording here and give yourself about 40 minutes to become fully immersed in the discussion.