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 the person or entity hiring the independent contractor has no obligation to withhold income taxes from the contractor’s fees. 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 distinction between an independent contractor and an employee is significant for tax and legal responsibilities. Independent contractors, often referred to as freelancers, operate under a business-to-business relationship with those who hire them, maintaining control over how they perform their work. Unlike employees, independent contractors are responsible for paying their own Social Security and Medicare taxes, known as self-employment taxes, and are not subject to tax withholding by the hiring entity. The classification of a worker as an independent contractor or an employee in Michigan is guided by 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 arrangements, the relationship between the parties, and the level of independence in the operation. It is crucial for businesses to correctly classify workers to avoid legal consequences and potential penalties from misclassification.