This important question has significant financial implications to small business owners. IRS Publication 15-A states "The general rule is that an individual is an independent contractor if you, the payer, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result." Based upon decided cases, the consideration of whether a worker is an employee or a contractor falls into three main categories: do you control the worker's behavior, do you control his financial situation and the relationship between you and your worker.   If the issue is unclear in your circumstances be sure get professional advice.