Generally, under common law, the hiring party is not responsible for the negligence of an independent contractor. The hiring party may be liable when, owing to its failure to exercise reasonable care to retain a competent and careful contractor, a third party is physically harmed. Also, when an independent contractor acts pursuant to orders or directions negligently given by the hiring party, the latter may be held liable. Notwithstanding the exceptions, the hiring party's risk of liability is greatly reduced by hiring independent contractors rather than employees. No consistent, uniform definition distinguishes an employee from an independent contractor.
Some statutes contain their own definitions.
One comprehensive test that takes into account agency-law criteria and numerous other factors courts have created to define independent contractor status was developed by the Internal Revenue Service. The twenty factors serve only as a guideline. Each factor's degree of importance varies depending on the occupation and the facts involved in a particular case. A worker who is required to comply with instructions about when, where, and how he or she must work is usually an employee. If a worker's services are integrated into business operations, this tends to show that the worker is subject to direction and control and is thus an employee.