Public vs. Private Employees & Independent Contractors

Public Sector (State & Local Government) Employees

Information on this website is intended for public employers/ employees and public pension plan administrators and/or participants. Much of the information contained in this website can be of assistance to public employers/ employees and public pension plan administrators and/or participants in other states, as well as the Virgin Islands and Puerto Rico.

Basic information on how and why Social Security (Old Age, Survivor, and Disability Insurance, “OASDI”) and Medicare (Health Insurance, “HI”) are different for state and local government (public) employees versus those in the private sector can be found in the Federal-State Reference Guide (IRS Pub. 963).

Private Sector (Businesses)

Information on this website applies ONLY to the unique Social Security (Old Age-Survivor-Disability Insurance, “OASDI”) and Medicare (Health Insurance, “HI”) coverage and Federal Insurance Contribution Act (“FICA”) tax obligations that pertain SOLELY to state and local government employees. For information pertaining to employees and other workers in the private sector, refer to SSA's Business Services Online and the following IRS webpages:

Self-Employed and Independent Contractors

The courts have considered numerous factors in deciding whether a worker is an independent contractor or an employee. These factors fall into three main categories: behavioral control, financial control, and the relationship of the parties. The Internal Revenue Service and Social Security Administration compiled a list of 20 factors used in court decisions to help determine whether a worker is an employee or an independent contractor. These factors can indicate whether sufficient employer control is present to establish an employer-employee relationship. The importance of each factor varies depending on the occupation and the context in which the services are performed. The common law factors are designed only as a guide.

For more detailed information, refer to SSA’s If You Are Self-Employed and IRS's 20-Point Checklist for Self-Employment, and refer to the following IRS resources:

For more information about determining a worker's classification, contact the IRS and Social Security.

Additional Information

Consequences of Misclassifying a Worker: If a worker is incorrectly classified as an independent contractor instead of an employee, the worker will pay both the employer’s and the employee’s share of certain employment taxes. For the employer, misclassifying a worker as an independent contractor can also result in back taxes, penalties, and interest. Misclassification errors have cost some states and political subdivisions millions of dollars; therefore, it is crucial to correctly determine if workers are independent contractors or employees at the time of hire.
If the Status of the Worker Cannot be Determined: Where a question arises regarding the employment relationship status of a worker, either the employer or the worker can bring it to the attention of the Internal Revenue Service (IRS). All pertinent facts relating to the worker’s arrangement should be obtained and submitted to the IRS on a Form SS-8. When a Form SS-8 is submitted to the IRS, all the facts are analyzed and the determination of the worker’s status is presented to the employer in the form of a written determination.
Indian Tribal Governments: For information pertaining to Indian Tribal Governments, refer to the IRS website for Indian Tribal Governments.