Contractor Classification Check is a free AI skill that runs a contractor vs employee checklist on how your contract engineers actually work, against IRS, Department of Labor and state tests. It gives a risk level per test with the facts behind it, checks code ownership and account control, and lists questions for your lawyer.
If the IRS reclassifies a worker, IRC 3509 makes the employer owe 1.5% of wages plus 20% of the employee's FICA share on top of its own full FICA share, and more if 1099s weren't filed. The skill computes that with your numbers. It gives no legal verdict; it gets you to the lawyer with the right facts.
What you get
Describe each contractor in plain words: where they live, hours, meetings, how they're paid, other clients, equipment, contract. In about 10 minutes you get:
- A summary table: IRS, DOL and state risk (Low, Medium, High), plus IP and account status, per worker
- The facts driving each rating, quoted from your description, and the unknowns that would move it
- The state test prong by prong where an ABC test applies, such as California's
- Money at stake, as an illustrative formula with your numbers
- Fix options, cheapest first: restructure, convert, employer of record or staffing firm, the IRS voluntary settlement program, or end the engagement
- An IP checklist and an account-ownership checklist (code host, cloud, domain, app stores)
- Questions for your lawyer and accountant, specific to your facts
- What to do this week without waiting for anyone
Sample output
From a real run on a fictional 9-person health-tech startup in California with three contractors: a full-time developer, a design agency, and a QA engineer moved from W-2 to contractor to save on benefits. This is the money section for the developer.
3. Money at stake (illustrative)
This uses the federal IRC 3509 reduced rates with 1099s filed (as of 2026-10, IRS Topics 751 and 759):
Formula: 1.5% × wages + 20% × (employee Social Security 6.2% + Medicare 1.45%) + 100% × (employer Social Security 6.2% + Medicare 1.45%) + FUTA (6.0% on the first $7,000, or 0.6% after the full state credit)
Marco, tax year 2025 (wages $176,000, under the 2025 Social Security wage base of $176,100; 1099 filed):
| Line | Calculation | Amount |
|---|---|---|
| Income-tax withholding | 1.5% × $176,000 | $2,640.00 |
| Employee FICA share | 20% × ($10,912 SS + $2,552 Medicare) = 20% × $13,464 | $2,692.80 |
| Employer FICA | $10,912 + $2,552 | $13,464.00 |
| FUTA | 0.6% × $7,000 (6.0% would be $420) | $42.00 |
| Total | $18,838.80 (or $19,216.80 with no FUTA credit) |
How it works
The label doesn't decide it. The IRS looks at behavioral control, financial control and the relationship of the parties. What the contract is called doesn't change the facts.
In California, prong B usually decides it. Under the ABC test (Labor Code 2775, from AB5), a worker is presumed an employee unless the work is outside the usual course of your business, among other conditions. A developer building your core product at a software company rarely meets that. Willful misclassification can cost $5,000 to $15,000 per violation, or $10,000 to $25,000 for a pattern (Labor Code 226.8).
The federal DOL test is in transition. Since Field Assistance Bulletin 2025-1 (May 2025), the Department of Labor no longer enforces its 2024 contractor rule and uses older guidance; the 2024 rule still applies in private lawsuits. A replacement rule was proposed in February 2026 and is not final as of October 2026.
Other states are named, not guessed. The skill carries the main test and statute for New Jersey, New York, Massachusetts, Illinois, Washington, Oregon, Texas and Florida, and says "check your state's test" for the rest.
Some facts outweigh the rest. Converting an employee to a contractor for the same job, full-time single-client work with no end date, required standups and a fixed monthly payment. The skill doesn't count factors like votes.
Exposure is computed, not hand-waved. Under IRC 3509, the employer owes 1.5% of wages and 20% of the employee's FICA share (3% and 40% if 1099s weren't filed), plus the full employer FICA and FUTA. The skill runs that with 2026 rates (Social Security 6.2% each side up to $184,500, Medicare 1.45% each side, FUTA on the first $7,000) and shows every line. The reduced rates disappear if the IRS finds intentional disregard. From 2026, a 1099-NEC is required at $2,000 a year, up from $600.
There's a voluntary fix. Eligible employers can use the IRS Voluntary Classification Settlement Program (Form 8952) and pay 10% of one year's reduced-rate liability, with no interest or penalties. It covers federal employment tax only.
IP and accounts are separate risks. Contractor code is generally not a "work made for hire" under 17 U.S.C. 101, so without a signed written assignment the contractor can own it. Investors' lawyers check this. And if the GitHub organization is in a contractor's personal account, they control your product.
General information as of 2026-10, not legal or tax advice.
How this compares. A generic checklist lists the IRS factors and stops. A chatbot asked cold often returns a confident "this person is a contractor" and skips IP and accounts.
How to install and use
Claude.ai: download the skill's .zip and upload it under Customize > Skills in Claude (any plan, including Free; code execution must be on). Then describe your contractors.
Claude Code: run /plugin marketplace add Remutopia/ruzora-skills, then /plugin install hire-close@ruzora-hiring, and ask for a contractor classification check.
Any other AI (ChatGPT, Gemini, Copilot): copy the prompt version of the skill, paste it as the first message, then describe the engagements.
Include each person's state or country. It decides which tests apply.
Frequently asked questions
How do I know if a developer should be a contractor or an employee? Look at control (who sets hours and methods), money (fixed price, own tools, other clients, chance of loss) and the relationship (open-ended, core work, benefits). In ABC-test states such as California, the work must also be outside your usual business.
What happens if I misclassify a contractor? Federal back taxes under IRC 3509 at minimum, plus employer FICA and FUTA, interest and penalties, and state penalties that in California run $5,000 to $25,000 per violation. Back wages and benefits claims can follow.
Can I fix misclassification without an audit? Options include restructuring the engagement, converting to employee, moving to an employer of record or staffing firm, and the IRS Voluntary Classification Settlement Program for eligible employers.
Engineers without the classification question
If you want senior engineers in Latin America, working US hours, without carrying contractor classification risk yourself, see why Latin America and our flat monthly pricing.
For a side-by-side of the models, read staff augmentation vs independent contractor.