Contractor misclassification is treating a worker as an independent contractor when, under the relevant law, the relationship is really employment. It can expose the business to back taxes, unpaid benefits, penalties and claims from the worker.
Contractor or employee status turns on independence: a contractor runs a business selling services, an employee works under your direction in yours. The status decides who pays tax and contributions and which legal protections apply.
Contractor-to-employee conversion is moving an independent contractor onto an employment contract, either directly or through an employer of record. It changes their legal status, pay, benefits and protections, and ends the old contractor agreement.
An employer of record (EOR) is a company that legally employs workers on another business's behalf in a country where that business has no entity. The EOR holds the employment contract, runs payroll and meets local employment duties, while the client directs the daily work.
An independent contractor is a self-employed person or business that provides services to a client under a commercial contract, not as an employee. They control how the work is done and handle their own tax and insurance.
Through an employer of record a worker becomes a local employee with benefits; as an independent contractor they run their own business instead. EOR adds control and compliance cover, and contracting is lighter and faster but carries misclassification risk.
A freelance developer is a self-employed software engineer who sells services to clients by project or by time rather than working as an employee. Clients gain flexibility but take on more management and compliance responsibility.
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