Is Your Subcontractor Really a 1099?
Misclassifying a worker can mean back payroll taxes, penalties, and interest if the IRS disagrees with how you’ve classified them. Answer six quick questions to see where you stand.
Question 1 of 6
Who controls how, when, and where the work gets done?
This is the IRS “behavioral control” test. The more you direct the specific methods and schedule, the more it looks like employment.
Question 2 of 6
Do they use their own tools and work for other clients too?
This is the “financial control” test. An independent business typically invests in its own equipment and isn’t reliant on one client.
Question 3 of 6
How are they paid?
Getting paid per job or project looks like a contractor relationship. A regular wage regardless of output looks more like an employee.
Question 4 of 6
Is the relationship tied to a specific project, or ongoing and indefinite?
This is the “type of relationship” test. A defined, temporary engagement looks like a contractor. Indefinite, ongoing work that’s core to your business looks like employment.
Question 5 of 6
Do they run a real business of their own?
The IRS looks at whether a worker offers their services to the public as an independent business. An LLC, their own liability insurance, a trade license, and an EIN are strong signs of independence.
Question 6 of 6
How does their work compare to what your company sells?
A specialist you bring in for work you don’t do yourself looks like a contractor. Someone doing the same work your customers hire you for, alongside your own crew, looks more like an employee.
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This is a simplified, educational estimate based on the general IRS common-law factors (behavioral control, financial control, and relationship type). It isn’t a legal determination. Worker classification can carry real financial and legal risk, so talk with us before making any changes to how you classify someone.