Independent Contractor Classification

Independent contractor classification is determined by the nature of the working relationship, not the label in the contract. In the US, the IRS applies a behavioral control, financial control, and type-of-relationship framework. California imposes the stricter ABC test under AB5, which presumes employment unless the company can demonstrate all three prongs: the worker is free from control, the work is outside the company's core business, and the worker is independently established in that trade. The UK applies IR35 rules that examine substitution rights, mutuality of obligation, and control. An FMS with embedded classification logic applies the relevant test based on the contractor's work jurisdiction — not a one-size-fits-all screen.

A classification failure means the system has identified the engagement as carrying material misclassification risk under the applicable standard. At that point, the engagement should not proceed as a direct 1099 relationship. The appropriate resolution depends on the worker's jurisdiction and the nature of the work: in many cases, routing the worker through an Employer of Record (EOR) arrangement is the compliant path, converting the engagement to W-2 employment without ending the working relationship. Some programs also restructure the engagement terms — adjusting behavioral control factors, introducing a subcontracting agreement, or requiring the worker to hold a business entity — before re-running the classification assessment.

Yes, in most programs they do — and for good reason. A contractor who operates through their own LLC and carries commercial general liability insurance is exhibiting the independence markers that support IC status. These aren't arbitrary compliance hoops; they're evidence of a genuine independent business relationship that regulators look for. A worker who operates under direct supervision, uses the company's tools, and has no independent business presence presents a meaningfully different risk profile — regardless of what the contract says.

For W-2 workers managed through an EOR arrangement, I-9 and E-Verify requirements are the EOR's obligation as the employer of record. For direct W-2 employees your company is engaging outside of an EOR structure, the FMS can integrate with third-party I-9 and identity verification tools to collect and store documentation within the onboarding workflow. E-Verify connections depend on your specific vendor stack — integrations with Equifax I-9 Anywhere, Tracker I-9, and similar tools are available. Confirm your specific verification vendor requirements during implementation.

Yes. State-level rules in the US vary significantly — California's ABC test under AB5 is materially stricter than the federal common law test, and states like New Jersey, Massachusetts, and Illinois have their own tests that differ from both. Internationally, the UK applies IR35, France and Germany classify workers more aggressively toward employment, and Brazil's CLT framework creates significant risk for long-term contractor engagements. A jurisdiction-aware FMS applies the right standard based on where the contractor is located, not a single global policy that either over-restricts or under-protects.

Yes. Program administrators can configure risk guardrails by jurisdiction, worker type, or engagement structure. A contractor attempting to onboard from a restricted jurisdiction — or an engagement that meets a threshold for elevated misclassification risk — can trigger a review workflow, pause onboarding pending compliance team approval, or route directly to an EOR path. These rules are configurable to your program's specific risk tolerance and the jurisdictions you operate in.