The 1099 Misclassification: What It Is and How to Avoid It

You’ve probably heard a lot about 1099 workers over the last decade, especially since the pandemic. With so many people working for themselves, a new legal problem has cropped up. Here’s what you need to know about 1099 misclassification, in case you too have a case. Once you read through the information here, you’ll see why so many workers consult an employment lawyer when they feel they’ve been misclassified.

What Is 1099 Misclassification?

If you’re an independent contractor (freelancer) in the United States, you’re what’s known as a 1099 worker. The name comes from the 1099 form clients send to the IRS to report earnings.



When 1099 misclassification occurs, a company says that a worker is an independent contractor when they’re really an employee (a W2 worker) in the eyes of the law. You’ll see below why this happens so often and how 1099 misclassification is determined.

What Are the Motives Behind 1099 Misclassification?

Pure greed is why most companies misclassify workers who should be employees as independent contractors. When a worker is not an employee but a freelancer, their employer doesn’t have to pay payroll taxes, such as Social Security, nor do they have to pay minimum wage or overtime.

Workers get no paid sick or vacation time, and they are not entitled to family leave. Health insurance? Nope, workers don’t get that either. All of this lets companies make more money by reducing their overhead and increasing their profit margins.

If that weren’t bad enough, employers who misclassify workers as 1099 contractors can get away with not providing the meal and rest breaks that they have to give employees. They may also not be subject to the same laws as other companies regarding workplace safety. There are usually no HR departments either, so workers have no one to go to if there are issues about job performance, discrimination, or harassment.

Does 1099 Misclassification Really Matter? Yes!

Although it’s easy to shrug off 1099 misclassification as just IRS bureaucracy, it hurts workers in multiple ways:

• Independent contractors pay higher taxes.
• Freelancers generally make less money because they aren’t given overtime pay and might not even make the minimum wage otherwise required by the state.
• Workers paid on a 1099 basis have no protection against many types of workplace violations, nor are they guaranteed proper meals and breaks.
• Independent contractors miss out on many perks given to employees, such as paid time off, retirement accounts, pensions, and health insurance.
• If you’re injured on the job, there is no workers compensation to pay for medical care for independent contractors.
• Only employees can file for unemployment if they’re laid off, not 1099 workers.
• Freelancers cannot form a union for stronger workplace protections.

Why Is 1099 Misclassification Even More Confusing in California?

The California state legislature tried to reduce incidents of 1099 misclassification. A few years ago, they passed Assembly Bill 5, also known as AB 5. Some other states have passed similar bills, and the United States Congress has proposed a national version called the PRO Act that so far can’t get passed in the Senate.

Inspiring AB 5 were the numerous rideshare businesses that had independent contractors driving cars for companies like Uber and Lyft. It was felt that those workers should really be considered employees to give them better protection and compensation on the job. Many drivers wanted to unionize, adding further impetus to the bill.



However, AB 5 caught many professions in its net who actually did not want to be considered employees. Journalists who write frequently for certain publications, for example, consider those newspapers and magazines clients not employers.

Making them employers opens up a whole new can of worms. For instance, if a report writes for five different magazines, which one pays for the worker’s benefits? Could a publication suddenly start dictating a worker’s hours or workplace location? Some freelancers like working for themselves for the freedom it brings.

The Crux of AB 5: The ABC Test

To determine whether or not a worker is an employee or a contractor, AB 5 uses what’s called the “ABC test.” You are considered to be an employee unless you meet all of these criteria:

1. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
2. The worker performs work that is outside the usual course of the hiring entity’s business; and
3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The Status of AB 5 and 1099 Misclassification Today

The particulars of AB 5 have been argued in court over the last several years in various industries. Amendments have provided exemptions or easing of the strict rules set forth in the ABC test for some professions.

At the moment, a court ruling recently decided that rideshare companies do not need to consider their drivers as employees and may continue to treat them as independent contractors, in spite of AB 5. But that doesn’t let other employers off the hook.



Many industries abuse 1099 misclassification, including e-commerce hiring of customer service and call center workers, recruiting, computer, and IT, and finance and accounting.

Are you someone who feels you should be an employee yet have been forced to file a W9 to receive a 1099 form saying you’re an independent contractor?

Can an Employment Attorney Help with 1099 Misclassification?

As you might guess after reading the information above, if you’re in California, it can be tricky to know if you’ve been a victim of 1099 misclassification. That’s why many workers consult with an employment attorney, who can help them wade through the fine print and decide what to do next, including pursuing the matter in court.

If you’ve been misclassified, it’s not just a matter of setting the matter straight with the IRS. You may be entitled to unpaid wages and overtime, unpaid meal and rest breaks, and penalties and interest.

At Employee Law Group, we bring over 25 years of experience and the resources you need to have your rights protected as a worker. It’s free to find out if you have a 1099 misclassification case because our first consultation is complimentary. Call us at 310-407-7358 today or get in touch online to set up your appointment.