Independent contractors must legally risk losing money to prove their freedom
Business
To maintain their tax status, true freelancers must prove they possess the 'opportunity for loss,' essentially gambling their own capital on every project they accept.
In the eyes of the law, the primary difference between a secure employee and a free agent is the ability to go broke. Under regulations like California's strict ABC test, a worker is only considered an independent contractor if they bear 100% of the financial risk for their work. If a project fails or a client doesn't pay, the contractor must lose their own money; if the company covers the loss, the worker is legally an employee.