Read Employees vs. Independent Contractors (www.nolo.com)

As far as the IRS is concerned, there are only two types of workers in the world: employees and independent contractors ("ICs"). Independent contractors are people who are in business for themselves. Employees work for someone else’s business. Being classified as an independent contractor instead of an employee has enormous consequences. Because they are supposed to be in business for themselves, ICs don't get the same legal protections that employees do--for example, they don't qualify for unemployment insurance and are not protected under most labor laws. Moreover, hiring firms need not provide ICs with benefits ordinarily provided to employees such as health insurance or vacations.