It's way more complicated than that. It also depends on how much control a contractor has over his task, hours, and tools. Even if you have a work for hire agreement, micromanagement can turn the contractor into a Statutory Employee. If you treat them as employees they may well turn out to be employees if anything goes to court. Microsoft learned that the hard way.
EDIT: Clarification: The IRS and Labor department dont really like independent contractors; it allows you all sorts of tax write-offs. They have a list of tests to see if you qualify: available to work for anyone, advertising, the list above, and a few other things. If you work at their site, using their equipment, and are micromanaged, you may be declared a statuary employee. A business license should be a simple remedy.
Micromanaging someone, dictating their tools, etc, are telling them how to spend their time. Which I would take to mean that they clearly must have sold you that time (regardless of what's on paper) rather than whatever they're producing with it.
EDIT: Clarification: The IRS and Labor department dont really like independent contractors; it allows you all sorts of tax write-offs. They have a list of tests to see if you qualify: available to work for anyone, advertising, the list above, and a few other things. If you work at their site, using their equipment, and are micromanaged, you may be declared a statuary employee. A business license should be a simple remedy.