Independent Contractor vs Employee
3
Tests
IRS, DOL, ABC
6
DOL Factors
2024 Final Rule
ABC
Strictest
All three prongs required
same worker · three different gates · maybe three different verdicts
The Three Gates
Picture a worker walking up to three checkpoints. The IRS gate, the DOL gate, the ABC gate. Each one applies a different test. The worker can pass one and fail another.
how to read this
- › The same worker can pass ONE gate and fail another. The IRS could call you a contractor while California (ABC) calls you an employee.
- › ABC is the strictest because it requires all three prongs. Failing any one = employee.
- › Misclassification penalties stack: FLSA, FICA, workers comp, ERISA — back to the start of work.
Exam Traps
A written contract does NOT determine status
Calling someone an independent contractor on paper means nothing. The actual working relationship controls. The exam tests this directly.
ABC requires ALL THREE prongs
Failing any one means employee status. IRS and DOL weigh factors with no single one controlling. ABC is strictest because it has no exceptions.
The 2024 DOL rule replaced the 2021 rule
Older study materials reference the simpler 2021 test. It is no longer in effect. Memorize the 6-factor totality analysis.
Misclassification triggers multi-statute liability
FLSA overtime, FICA payroll tax, workers comp, ERISA benefits — all attach back to the start of work. Penalties stack.
Label ≠ status
The 1099 form does not make someone a contractor. Behavior controls, not paperwork.
California = ABC
When the question is set in California or describes the strictest state test, the answer is the ABC test (AB5).
Shows up in his own truck. Brings his own tools. Sets his own schedule. Does the same work for fifty customers this month. Independent.
Drives a company van. Wears the company uniform. Follows a manager-set schedule. Uses company tools. Works only for this one company.
Now imagine Plumber B is paid as a contractor on paper. The IRS does not care what the paper says. Behavior shows employee.
IRS looks at control. DOL looks at economic reality. ABC looks at three independence prongs and demands all three.
Ready to test your PHR knowledge?
1,700+ practice questions written by certified professionals.
Start Practicing PHR