An independent contractor (also known as a freelancer) is a person or entity who agrees to work for another person or entity as a nonemployee. Because of the independent contractor’s status as a nonemployee, the contractor must pay their own Social Security and Medicare (FICA) taxes. And unlike an employer, the person or entity hiring the independent contractor has no obligation to withhold income taxes from the contractor’s fees or to provide the contractor with any employee benefits. It is important for the person or entity who hires a worker to properly classify the worker as an employee or as an independent contractor based on the IRS’s right-to-control test.

In Michigan, as in other states, the classification of a worker as an independent contractor or an employee is significant for tax purposes and compliance with labor laws. Independent contractors in Michigan are responsible for paying their own Social Security and Medicare taxes, as they are not considered employees. The hiring entity does not withhold income taxes from payments to independent contractors and is not required to provide them with employee benefits. The classification must align with the IRS's right-to-control test, which examines factors such as the degree of control the hiring party has over the way work is performed, the financial aspects of the worker's job, and the relationship between the parties. Misclassification can lead to legal consequences, including penalties and back taxes. It is advisable for both parties to review the IRS guidelines and Michigan state laws to ensure proper classification.