Misclassification happens when a business treats a worker as a 1099 independent contractor when the actual working relationship meets the legal definition of W-2 employment. Misclassification denies the worker:
- Employer-paid half of FICA (7.65%)
- Minimum wage and overtime protections
- Unemployment insurance coverage
- Workers' compensation
- Eligibility for employer-sponsored benefits
And it lets the business avoid:
- Payroll tax matching
- Unemployment insurance contributions
- Workers' comp premiums
- Minimum wage / overtime liability
Tests used to determine proper classification:
- IRS common-law test: behavioral control, financial control, relationship
- FLSA economic reality test: integration with the business, profit/loss opportunity, investment in equipment, skill required, permanence, control
- ABC test: stricter, used by 24+ states for unemployment determinations and (in CA) for most labor law purposes
If you believe you're misclassified, you can file Form SS-8 with the IRS for an official determination, Form 8919 to recover the uncollected FICA on past wages, or a complaint with state DOL / federal Wage and Hour Division.
The 2024 federal DOL rule restored a stricter "totality of the circumstances" test for federal classification, making it harder for businesses to classify ongoing workers as ICs.