They invoice you. That does not make them a contractor.
Neither does an LLC, a signed 1099 agreement, or the fact that they asked to be paid that way. The IRS looks at one thing: how much control you have over the work. Answer twelve questions the way an auditor would read them and see where this worker actually lands.
Behavioral control — who decides how the work gets done
Financial control — who carries the economics
Type of relationship — what it looks like from outside
If this one were reclassified
Federal employment tax only, at the reduced IRC 3509 rates that apply to classification cases.
Not filing roughly doubles the withholding piece.
If the IRS reclassified this worker, the federal employment tax alone runs 10.68% of what you paid them — employer FICA in full, plus a reduced share of what you should have withheld.
How the three tests actually read
| Category | What an auditor is looking for | Points to |
|---|---|---|
| Behavioral control | Who decides when, where and in what order the work happens. Instructions, training and supervision are the tells.A contractor is hired for a result. An employee is directed through a process. | Employee |
| Financial control | Who owns the tools, who carries unreimbursed expense, and whether the worker can actually lose money on the job.No possibility of loss is one of the strongest employee signals there is. | Employee |
| Type of relationship | Whether the arrangement is open-ended, whether benefits are provided, and whether the work is core to what you sell.A framer whose framers are all 1099 is the classic audit target. | Employee |
| What does not decide it | An LLC or EIN. A signed agreement calling them a contractor. The worker preferring 1099. Being paid by invoice.All four are common and none of them are protective on their own. | Nothing |
This is a risk indicator, not a determination — and not legal or tax advice. No score decides classification. The IRS weighs the whole relationship, and several states apply a much stricter ABC test than the federal common-law factors, where a worker is presumed an employee unless all three prongs are met. California, Massachusetts and New Jersey are the usual examples. Print this, take it to your CPA or an employment attorney, and let them make the call.
If you want certainty, there is a form for it. IRS Form SS-8 asks the IRS to rule on a specific worker. It is slow and the answer is binding, so talk to your CPA before filing one. And the exposure above is federal employment tax only — penalties, interest, state unemployment and state income tax withholding all stack on top.
Whichever way it lands
Both answers need paperwork you probably do not have.
If they are a contractor, you need the file that proves it. If they are an employee, you need the onboarding pack that should have existed on day one. Same problem, two directions.
Subcontractor Compliance System
W-9, both certificates, additional insured endorsement, signed agreement and lien waivers, tracked per sub with expiry dates that flag before they lapse.
New Hire Onboarding System
W-4, I-9, direct deposit, handbook acknowledgment and the first-week checklist — the file you are supposed to be able to produce for every person on payroll.
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