As always, the first question to ask is, what are you using the distinction for? Only then can you start making progress in the debate over the issue; otherwise, you're just committing the "Noncentral Fallacy"[1] of forcing something to be completely in one category (or the other) and attaching all of its usual implications, regardless of how special the case is.

For example, instead of asking "is alcoholism really a disease?", you should be asking "Will it accomplish anything if I rebuke an alcoholic for drinking?" or "Are there medicines that will result in someone not drinking so much, with tolerable side effects?"

So what is labor law trying to accomplish with the contractor/employee distinction? I don't have a good answer. As best I can tell, it's trying to meet two criteria:

A) Ensure that legit independent businesses can exist and not be shut down for failing to pay themselves enough; and

B) Ensure that, if you make someone economically dependent on you, you cancel out that dependence (sick pay, unemployment, worker's comp), just like we do for parental obligations, child support, alimony, and torts.

Sadly, it turns out, the law commits the Noncentral Fallacy by acting as if everyone fully in one category or the other, so your "balance of factors" puts you squarely on one side or the other. A better way would be to require more "cancel dependence"-type benefits as someone becomes increasingly "employee-like" in the sense of becoming dependent.

But I'm open for other explanations of the law.

[1] http://lesswrong.com/lw/e95/the_noncentral_fallacy_the_worst...