An independent contractor (also known as a freelancer) is a person or entity who agrees to work for another person or entity as a nonemployee. Because of the independent contractor’s status as a nonemployee, the contractor must pay their own Social Security and Medicare (FICA) taxes. And the person or entity hiring the independent contractor has no obligation to withhold income taxes from the contractor’s fees. It is important for the person or entity who hires a worker to properly classify the worker as an employee or as an independent contractor based on the IRS’s right-to-control test.

In Hawaii, the classification of a worker as an independent contractor or an employee is crucial for tax and legal purposes. Independent contractors are considered self-employed and are responsible for paying their own Social Security and Medicare taxes, known as self-employment tax. They are not entitled to employee benefits and protections such as minimum wage, overtime, unemployment insurance, and workers' compensation. The hiring entity does not withhold income taxes from payments to independent contractors. The classification is guided by the IRS's right-to-control test, which examines factors such as the degree of control the hiring entity has over the work performed and the worker's independence in the execution of their tasks. It is essential for businesses in Hawaii to correctly determine the status of their workers to avoid penalties and liabilities for misclassification. If there is uncertainty, Form SS-8 can be filed with the IRS to request a determination of a worker's status. Additionally, Hawaii may have specific guidelines and tests that supplement the federal criteria, and it is advisable for businesses to consult with an attorney to ensure compliance with both state and federal regulations.