Ridesharing platforms like Uber and Lyft have recently come under public scrutiny regarding the "independent contractor" vs "employee" status of their drivers. To address whether or under what circumstances, the platform, the drivers and consumers are better off under the "employee" or under the "independent contractor" status, we derive the optimal compensation design under each of these two statuses. We show how the profitability and welfare comparisons for the platform, drivers and consumers across the two statuses depend on key market characteristics, such as difference in demand between rush hour and non-rush hour periods and the degree of heterogeneity in the outside options of drivers. Our paper provides support for the concerns in the public arena by highlighting potential regions of conflict where the platform's preferred the contractor status can leave drivers worse off. There are also scenarios where the drivers and the platform are aligned in their preference for the contractor status, and any regulatory intervention forcing a switch to an employee status may leave drivers worse off. In addition, we highlight areas where such intervention can improve drivers’ welfare but hurt consumers in the process, as well as areas where the intervention can benefit both drivers and consumers.