Independent contractor

Definition

An independent contractor (1099 worker) is a self-employed person or business that provides services to another business under contract. The contractor controls how the work is done, uses their own tools, often has multiple clients, and bears the economic risk of the work. They pay self-employment tax and don't receive employer-provided benefits or workers comp coverage.

Worker classification (1099 vs W-2) is governed by multiple tests — IRS common law test, DOL economic realities test, state ABC tests (California, Massachusetts, others). The tests overlap but aren't identical, and misclassification has significant consequences: unpaid payroll taxes, unpaid overtime, missing workers comp coverage, missed benefits eligibility.

PEOs handle W-2 employees only — 1099 contractors stay outside the co-employment relationship. The classification decision (which workers are actually contractors vs. employees) is the client's — most PEOs will flag obvious misclassification risks during onboarding but don't make the final call.

Common questions about Independent contractor

Related terms

• Form 1099 — Annual tax document issued to independent contractors and other non-employees who received payments during the tax year.
• Worker classification — The legal determination of whether a worker is an employee or independent contractor for tax, benefits, and wage-and-hour purposes.
• Gig worker — A worker performing short-term jobs or piecework, typically via an app or platform — usually classified as 1099.

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