1099 or W-2, how is a US worker classified?
Three tests run in parallel: the tax test, the federal wage and hour test, and the state test, which in several states is the stricter three part test. A worker can be a contractor for one and an employee for another.
The answer differs between the federal level and the states, see the rows below.
The answer by level
Tax treatment
For tax purposes the common law test asks who controls the behaviour and the finances of the work, and what the parties' relationship looks like in practice.
IRS Publication 15-A, common law employee testsFederal level
For minimum wage and overtime the analysis is the economic reality of the whole relationship, and the label in the contract does not decide it.
29 CFR Part 795, employee or independent contractor classificationState level
Several states apply a stricter test in which a worker is an employee unless the hiring party proves absence of control, work outside the usual course of business and an independently established trade.
29 U.S.C. §§ 201 to 219, 29 CFR Parts 500 to 899
Source lines
- The tax analysis weighs behavioural control, financial control and the type of relationship, with no single factor decisive.
- The wage and hour analysis looks at the economic reality of the whole relationship rather than the contract label.
- Stricter state tests place the burden on the hiring party and require all three conditions to be proved.
What it means for the company
Misclassification is reconstructed backwards: unpaid overtime, payroll taxes, penalties and interest for the whole period, per worker.
| Level | Requirement | Source |
|---|---|---|
| Tax treatment | For tax purposes the common law test asks who controls the behaviour and the finances of the work, and what the parties' relationship looks like in practice. | IRS Publication 15-A, common law employee tests |
| Federal level | For minimum wage and overtime the analysis is the economic reality of the whole relationship, and the label in the contract does not decide it. | 29 CFR Part 795, employee or independent contractor classification |
| State level | Several states apply a stricter test in which a worker is an employee unless the hiring party proves absence of control, work outside the usual course of business and an independently established trade. | 29 U.S.C. §§ 201 to 219, 29 CFR Parts 500 to 899 |
What it means for the individual
A worker treated as a contractor pays self employment tax and falls outside overtime, unemployment insurance and workers' compensation in most cases.
Source lines
- Fair Labor Standards Act29 U.S.C. §§ 201 to 219, 29 CFR Parts 500 to 899 · read 2026-08-25 · proof ffdf022ac5d4dca6
- Internal Revenue ServiceIRS Publication 15-A, common law employee tests · read 2026-08-25 · proof ffdf022ac5d4dca6Official source
- Electronic Code of Federal Regulations29 CFR Part 795, employee or independent contractor classification · read 2026-08-25 · proof ffdf022ac5d4dca6Official source
Next step
Test each role against all three tests in writing, and keep the assessment with the contract rather than in it.
This page reports what the sources say, with the identifier and address of the publisher. It is not legal advice and does not decide an individual matter.
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