Can a Company Have All 1099 Workers?

Yes, a company can theoretically have all 1099 workers (independent contractors), but it must meet strict criteria to classify workers as independent contractors under federal and state laws. Misclassifying employees as contractors can lead to legal and financial penalties.

Key Considerations for 1099 Workers

1. Independent Contractor Definition:
   • Independent contractors are self-employed individuals who provide services to a company under a contract.
   • They control how and when they work, use their tools, and often serve multiple clients.
2. Legal Tests for Classification:
   • IRS Test: Focuses on three factors:
     1. Behavioral Control: Does the company control how the worker performs tasks?
     2. Financial Control: Does the worker control their financial aspects, like setting fees and managing expenses?
     3. Relationship: Is there a contract or long-term obligation, and are benefits provided?
   • Department of Labor (DOL): Applies an economic realities test under the Fair Labor Standards Act (FLSA) to determine whether a worker is truly independent.
   • State Laws: Some states, like California, use the ABC Test, which is stricter and often classifies workers as employees unless they meet specific criteria.
3. Risks of Misclassification:
   • Failure to properly classify workers can result in:
     • Back wages, benefits, and taxes owed.
     • Penalties from the IRS, DOL, and state agencies.
     • Potential lawsuits from workers seeking employee rights.
4. Business Models with 1099 Workers:
   • Some industries, like gig economy platforms (e.g., rideshare or delivery services), frequently rely on 1099 workers.
   • The success of this model depends on properly structuring the relationship to comply with labor laws.

When It’s Permissible

• A company can have all 1099 workers if:
  • The workers meet the IRS and state-specific definitions of independent contractors.
  • The work arrangement allows for independence in methods, tools, and schedules.
  • The company does not exert employer-like control over the workers.