White Papers & Research

The Slippery Slope of Worker Misclassification: An Independent Contractor Primer

As the government launches a massive misclassification initiative to crackdown on companies that misclassify workers companies are left with many critical questions: What is an independent contractor? Are we classifying workers correctly? How do companies unintentionally get into a position of risk? What are the risks of worker misclassification? Are there any legal implications or penalties for misclassification of workers? This white paper will help you learn about employee misclassification and provide you with best practices that will help avoid any future issues.


An independent contractor, also known as a 1099 contractor, refers to a worker who contracts their services out to a business or businesses. An independent contractor is considered to be self-employed, not an employee of the business or businesses with which they work. "1099" refers to the IRS form that an independent contractor must receive to state their income from any given business in a given tax year.


Worker misclassification occurs when an employer hires a worker and improperly classifies that worker as an independent contractor instead of as an employee. Employee misclassification is becoming an increasingly large problem impacting employers, workers and the government. Up to 30 percent of employers misclassify workers, according to the Department of Labor. Another federal study estimates that 3.4 million workers are classified as independent contractors, when they should be reported to the government as employees. This is a concern for the federal government because they are losing tax revenue from employers who misclassify workers and fail to withhold the appropriate payroll taxes.