Independent Contractor vs. Employee
Misclassifying workers can result in severe penalties. Pennsylvania uses the ABC test (43 P.S. § 753(l)(2)(B)) to determine worker status for unemployment compensation purposes.
PA ABC Test for Worker Classification
Under Pennsylvania’s unemployment compensation law, a worker is presumed to be an employee unless the hiring entity proves ALL THREE factors of the ABC test.
Freedom from Control
The worker is free from control or direction in the performance of the work, both under the contract and in fact.
✅ Supports Independent Contractor
- Sets own hours
- Chooses methods/tools
- Works without supervision
- Can hire own helpers
⚠️ Red Flags (Employee)
- Required to follow specific schedule
- Must use company tools/equipment
- Receives detailed instructions
- Cannot delegate work
Outside Usual Business
The service is performed outside the usual course of business of the employer, OR outside all places of business of the employer.
✅ Supports Independent Contractor
- Electrician hired by a restaurant
- IT consultant for a law firm
- Work done at worker’s own shop
⚠️ Red Flags (Employee)
- Worker does the same work as employees
- Works at employer’s location exclusively
- Services are core to employer’s business
Independent Business
The worker is customarily engaged in an independently established trade, occupation, profession, or business.
✅ Supports Independent Contractor
- Has own business license
- Advertises services publicly
- Serves multiple clients
- Has own liability insurance
⚠️ Red Flags (Employee)
- Works exclusively for one company
- No business license or insurance
- Does not advertise services
- No investment in own equipment
IRS Common Law Test
26 U.S.C. § 3121 — The IRS uses a multi-factor test examining three categories. No single factor is determinative.
Behavioral Control
- •Instructions given
- •Training provided
- •Evaluation systems
- •Work sequence dictated
Financial Control
- •Significant investment
- •Unreimbursed expenses
- •Opportunity for profit/loss
- •Services on open market
Relationship Type
- •Written contract terms
- •Employee benefits
- •Permanency of relationship
- •Key aspect of business
Misclassification Consequences
Legal Disclaimer
This information is provided for educational purposes only and does not constitute legal advice. Contractor law involves complex regulatory requirements that vary by jurisdiction. Consult with a qualified attorney before taking any legal action. All content prepared with attorney supervision.
All educational content and document templates are prepared under the supervision of a PA licensed attorney.