Employee or Independent Contractor? Federal Guidance for Remote Insurance Support Roles

Research question

How do federal authorities determine whether a remote insurance support worker, such as a virtual assistant handling policy service work, is an employee or an independent contractor, and what does that mean for an agency that engages such workers?

The question is practical because the common arrangement, a remote person working set hours on the agency's systems under the agency's direction, looks different depending on which federal test applies. This paper reviews what the primary sources say, distinguishes their standards, and states its limits. It is not legal or tax advice.

Method

This is a desk review of three authoritative sources:

1. The IRS page "Independent contractor (self-employed) or employee?", which describes the IRS's general framework and the consequences of misclassification.
2. The IRS "Worker Classification 101" article, which lists the three categories of evidence the IRS considers.
3. U.S. Department of Labor Wage and Hour Division Fact Sheet 13, which describes the economic reality test under the Fair Labor Standards Act (FLSA), including the 2024 rule and the agency's note on litigation and enforcement posture.

Each source was read directly. No interviews, surveys, or agency-specific facts were collected. No determination is made about any specific working relationship.

Evidence

The IRS common-law framework

The IRS states that it is critical for business owners to determine correctly whether individuals providing services are employees or independent contractors, because the tax consequences differ. Generally, employers must withhold and deposit income, Social Security, and Medicare taxes from wages paid to an employee, pay the matching employer portion, and pay unemployment tax. Generally, the IRS says, businesses do not have to withhold or pay taxes on payments to independent contractors (IRS, Independent contractor or employee).

The IRS explains that a worker is generally an employee if the business can control what will be done and how it will be done, and that what matters is the right to control the details of how the services are performed, even if the worker chooses to work remotely. It adds a point directly relevant to remote placements: an individual working remotely is an employee under the common-law rules if the business can control what will be done and how it will be done, even if the worker can choose to work remotely (IRS, Independent contractor or employee).

The IRS "Worker Classification 101" article lists three categories of evidence (IRS, Worker Classification 101):

• Behavioral control: Does the company control or have the right to control what the worker does and how the worker does the job?
• Financial control: Does the business direct or control the financial and business aspects of the worker's job, such as how the worker is paid, whether expenses are reimbursed, and who provides tools or supplies?
• Relationship of the parties: Are there written contracts or employee-type benefits such as pension, insurance, or vacation pay? Will the relationship continue, and is the work performed a key aspect of the business?

The IRS also notes that if classification remains unclear, a business may file Form SS-8 requesting a determination, and that misclassifying an employee as an independent contractor without a reasonable basis can result in liability for employment taxes (IRS, Independent contractor or employee).

The DOL economic reality test under the FLSA

The Department of Labor's Fact Sheet 13 states that whether a worker is an employee or an independent contractor under the FLSA is determined by the economic realities of the relationship. If the worker is economically dependent on the employer for work, the worker is an employee; if the worker is in business for themself, the worker is an independent contractor. The fact sheet states that employment under the FLSA is not determined by technical concepts or common-law standards of control and is broader than the common-law standard often applied under other federal laws (DOL, Fact Sheet 13).

Fact Sheet 13 lists six factors, to be considered together with no single factor determinative (DOL, Fact Sheet 13):

1. Opportunity for profit or loss depending on managerial skill.
2. Investments by the worker and the employer.
3. Permanence of the work relationship.
4. Nature and degree of control.
5. Whether the work performed is integral to the employer's business.
6. Skill and initiative.

The fact sheet states that what a worker is called is not relevant, that a worker paid off the books or receiving a 1099 is not necessarily an independent contractor, and that agreeing in writing to be classified as an independent contractor does not make a worker an independent contractor under the FLSA. It also states that the place where work is performed, whether a worker is licensed by a state or local government, and the time or mode of pay do not determine status under the FLSA. The fact sheet notes it is consistent with the 2024 rule, that the rule's legality is subject to litigation, and directs readers to Field Assistance Bulletin 2025-1 regarding the Wage and Hour Division's current enforcement position.

Source fact: Two federal agencies use different frameworks. The IRS applies a common-law control analysis; the DOL applies an economic reality test that it describes as broader than common law.

Findings

Finding 1: The labels and the contract do not decide. Both the IRS and DOL emphasize that actual working conditions matter more than the title or the written agreement. The DOL states explicitly that a signed independent contractor agreement does not make a worker an independent contractor under the FLSA.

Finding 2: Control is central but not the whole test. The IRS frames classification around the right to control what and how work is done. The DOL treats control as one of six factors and asks whether the worker is economically dependent.

Finding 3: Remote work cuts toward employee status under IRS common law if control exists. The IRS states that a remote worker is an employee under the common-law rules if the business controls what and how the work is done, even if the worker chooses to work remotely.

Finding 4: Permanence and integration matter. Under the DOL factors, continuous work without a fixed end, and work that is integral to the business, weigh toward employee status. Routine policy service work performed under agency processes and systems can look integral.

Finding 5: The consequences are meaningful. The IRS describes withholding, payroll-tax, and unemployment-tax obligations for employees and potential liability for misclassification without a reasonable basis.

Interpretation (author's, not from the sources): A remote virtual assistant who works fixed agency hours, follows agency procedures, uses agency systems and credentials, and whose work is central to the agency's service operations presents many employee-like characteristics under both frameworks. A genuinely independent business that serves multiple agencies, markets its services, sets its own methods, and bears its own costs looks different. The distinction is fact-specific.

Operational implications

These are proposed steps based on the source frameworks, not conclusions about any agency or worker:

1. Document the actual relationship, not the intended label. Write down who sets hours, who assigns work, who provides tools, how pay is structured, and whether the worker serves other clients.
2. Check all factors, not one. Under both frameworks, no single factor controls. A review that isolates control or permanence alone is incomplete.
3. Be careful with exclusivity and fixed schedules. Continuous, exclusive, fixed-hours work is more employee-like under the DOL permanence factor and may also weigh toward control under IRS analysis.
4. Consider the staffing-provider model. If the worker is employed by a staffing provider that manages employment obligations and controls the worker's employment terms, the agency's relationship may be with the provider rather than an individual contractor. How that is characterized depends on the facts and should be confirmed with counsel.
5. Use the available IRS process when uncertain. Form SS-8 exists for determination requests.
6. Track changing guidance. The DOL fact sheet itself flags litigation and an enforcement-position bulletin, which signals that this area is not static.
7. Review periodically. Classification analyses age. Changes in schedule, exclusivity, or supervision can change the picture.

Limitations

• Not legal or tax advice. This paper summarizes public guidance. It does not determine the status of any worker or arrangement.
• Different laws, different tests. FLSA classification, IRS employment-tax classification, state unemployment, workers' compensation, and state wage laws may each apply different standards. This review covers only the IRS framework and the FLSA framework.
• Litigation and shifting posture. The DOL fact sheet notes that the 2024 rule's legality is subject to litigation and directs readers to Field Assistance Bulletin 2025-1 for the current enforcement position. The law in this area can change.
• No state review. Many states apply their own tests, including more stringent ABC tests. None were reviewed here.
• No facts. No real working arrangement was examined, so no conclusion about any specific placement can be drawn.

Practical conclusion

The sources show that classification is decided by the facts of the working relationship, not by a contract or a job title. Under the IRS common-law framework, control over what and how work is done is central, and remote work does not change that where control exists. Under the DOL economic reality test, the question is economic dependence, assessed across six factors. For an insurance agency using remote support, the practical response is to document the real relationship, review all the relevant factors, and confirm the analysis with a qualified tax or employment adviser before relying on a classification.

Sources

1. Internal Revenue Service — Independent contractor (self-employed) or employee? https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee
2. Internal Revenue Service — Worker Classification 101: employee or independent contractor. https://www.irs.gov/newsroom/worker-classification-101-employee-or-independent-contractor
3. U.S. Department of Labor, Wage and Hour Division — Fact Sheet 13: Employee or Independent Contractor Classification Under the Fair Labor Standards Act. https://www.dol.gov/agencies/whd/fact-sheets/13-flsa-employment-relationship