INDEPENDENT CONTRACTOR CLASSIFICATION MEMORANDUM & CHECKLIST
Cover Memorandum
To: [COMPANY EXECUTIVE / HR DIRECTOR]
From: [EMPLOYMENT COUNSEL / HR COMPLIANCE MANAGER]
Date: [DATE]
Re: Classification Analysis – [WORKER/COMPANY NAME]
1. Background
Provide a concise summary of the engagement, including services to be provided, expected duration, payment structure, and whether similar workers are engaged as employees. Attach the executed Independent Contractor Agreement and Statement(s) of Work.
2. Federal Economic Realities Assessment (DOL WHD Memo 2025-1)
Complete the following analysis for each factor. Assign a weight of Supports IC, Supports Employee, or Neutral.
| Factor | Key Facts | Assessment | Notes |
|---|---|---|---|
| Opportunity for Profit or Loss | [FACTS] | [ASSESSMENT] | [RATIONALE] |
| Investments by Worker and Company | [FACTS] | [ASSESSMENT] | [RATIONALE] |
| Degree of Permanence | [FACTS] | [ASSESSMENT] | [RATIONALE] |
| Nature & Degree of Control | [FACTS] | [ASSESSMENT] | [RATIONALE] |
| Integral Part of Business | [FACTS] | [ASSESSMENT] | [RATIONALE] |
| Skill & Initiative | [FACTS] | [ASSESSMENT] | [RATIONALE] |
Document how the factors interact and note that no single factor is determinative under the totality-of-the-circumstances approach articulated in WHD Memo 2025-1.
3. IRS 20-Factor Alignment (Optional)
Summarize how the engagement aligns with the IRS guidance. Highlight any factors suggesting employee status and planned mitigations.
4. State Law Overlay Summary
[// GUIDANCE: Highlight the states where services will be performed or where the worker resides.]
| State | Test Applied | Key Elements | Risk Mitigation |
|---|---|---|---|
| California | ABC Test (Labor Code §2750.3) | (A) Freedom from control; (B) Work outside usual course; (C) Customarily engaged business | [MITIGATIONS/ALTERNATIVES] |
| New Jersey | ABC Test | [ELEMENTS] | [MITIGATIONS] |
| Massachusetts | ABC Test | [ELEMENTS] | [MITIGATIONS] |
| New York | Economic Realities | [ELEMENTS] | [MITIGATIONS] |
| [STATE] | [TEST] | [ELEMENTS] | [MITIGATIONS] |
5. Risk Conclusion
Provide a narrative conclusion summarizing overall classification risk and recommended safeguards (e.g., limited term, deliverables-based fees, multiple clients, optional conversion to employee).
6. Compliance Action Items
- Document independent business status (business license, EIN, insurance).
- Require periodic attestations of multiple clients and independent operations.
- Maintain copies of invoices, marketing materials, and proof of separate business entity.
- Schedule annual re-evaluation of classification.
Checklist: Independent Contractor Classification Controls
Engagement Planning
- [ ] Draft Statement of Work with deliverables, milestones, and acceptance criteria.
- [ ] Confirm Contractor maintains separate business entity or sole proprietorship with EIN.
- [ ] Verify business licenses or professional credentials.
- [ ] Assess availability of alternative staffing models (temp agency, employment).
Contracting
- [ ] Execute Independent Contractor Agreement with control, audit, and indemnity clauses.
- [ ] Include warranties regarding independent business operations and tax obligations.
- [ ] Incorporate confidentiality, data security, and IP assignment provisions.
- [ ] Attach state-specific notices (e.g., CA Labor Code §2775 disclosures).
Operational Controls
- [ ] Provide onboarding that focuses on project expectations, not employment policies.
- [ ] Avoid setting work hours; focus on deliverables and deadlines.
- [ ] Permit Contractor to use own tools/equipment and work offsite when feasible.
- [ ] Ensure Contractor remains free to accept other engagements.
Payment & Recordkeeping
- [ ] Pay against invoices or milestones; avoid hourly/timecard systems unless tied to deliverables.
- [ ] Issue Form 1099-NEC for payments over applicable thresholds.
- [ ] Track payments for state new-hire reporting requirements, if applicable.
- [ ] Retain certificates of insurance and business licenses.
Compliance Monitoring
- [ ] Conduct periodic audits verifying continued independence (multiple clients, business ads).
- [ ] Update agreement if engagement scope expands or extends beyond [MONTHS] months.
- [ ] Monitor state regulatory changes impacting classification.
- [ ] Maintain documentation for at least [YEARS] years following engagement.
Exit & Transition
- [ ] Document acceptance of final deliverables.
- [ ] Collect company property and terminate system access.
- [ ] Secure final invoice and release of claims if appropriate.
- [ ] Evaluate whether post-engagement non-solicitation or confidentiality obligations remain adequate.
Exhibits (Suggested)
- Exhibit A: Completed Statement of Work
- Exhibit B: Insurance Certificates and Business Licenses
- Exhibit C: State-Specific Disclosures and Notices
- Exhibit D: Annual Attestation of Independent Business Status
[// GUIDANCE: Store this memo and checklist in the personnel/compliance file and update with each re-engagement or renewal.]