Worker misclassification occurs when a worker engaged as an independent contractor is treated, in substance, as an employee.
Indicators. Direction over when/where/how work is done, integration into the client's structure, fixed hours, use of client equipment, no genuine business risk.
Consequences. Vary by jurisdiction — back taxes, reclassification, penalties.
How contract design affects risk. An outcome-based SoW carries lower risk than a pure capacity engagement.
Jurisdictional note. Tests differ between the US, UK (IR35) and EU member states; the German equivalent is Scheinselbstständigkeit.