The short answer
It is decided by how much you control the work, not by what you call the person or what they sign. If you set the hours, direct how the job is done, and supply the tools, that looks like employment, and calling it contract work does not protect you from back taxes, penalties, or an injury claim.
What actually decides it
Agencies look at the real relationship, not the label. The questions are practical ones.
- Do you set the hours and the order the work is done in?
- Do you direct how the work is performed, or only what the result should be?
- Do you supply the tools, the material, and the equipment?
- Could they send somebody else in their place?
- Are they free to take the same kind of work from other people that week?
Why the answer is often employee
A lot of day labor looks like employment when you go down that list honestly. You said be here at 7, you told them how to stack it, you handed them the saw, and you would not have accepted a substitute.
That is not a trap. It is just what hiring somebody to help you for a day usually is, and it is worth knowing which side of the line you are standing on.
What it costs to get it wrong
If a worker is reclassified as your employee after the fact, you can owe the payroll taxes you did not withhold, plus penalties and interest, and in some states the unemployment contributions too.
The bigger exposure is an injury. If somebody gets hurt and they are found to have been your employee, and you had no workers compensation, you are personally facing the medical bills, a state penalty, and in some states the right for them to sue you directly.
The paperwork does not decide it
An independent contractor agreement is worth having, but it does not settle the question. A signed form that says contractor and a job that ran like employment is still employment.
The states differ, and some use a much stricter test than the IRS does. If you hire regularly, that is a fifteen minute conversation with an accountant that saves an expensive surprise.
What to do about it as a small employer
For a genuine one off, most people treat it as contract work, collect a W-9, and issue a 1099 if the year adds up to 600 dollars or more.
If you hire the same people over and over, on your schedule, with your tools, treat it seriously. Talk to an accountant about payroll, and talk to your insurance agent about coverage before somebody is hurt rather than after.
Either way, ask your insurance agent one question: does my policy cover a person I hire for a day, and what happens if they are hurt here?
This guide is general information, not legal, tax, or insurance advice. Rules differ by state and by situation, so talk to your own professional before you rely on it.