Glossary · Compliance
What is Worker classification
Also called: employee vs contractor, 1099 vs W-2.
Definition
Whether a worker is an employee or an independent contractor in law. Getting it wrong creates back taxes, penalties and client indemnity claims.
Applies to: US and UK · Reviewed by James Doyle
In practice
In the US, tests vary by state and agency. California's ABC test is the strictest widely applied standard; federal tests focus on economic reality and control. In the UK, IR35 determines whether a limited-company contractor is taxed as an employee.
For most agency-supplied contract work, W-2 in the US and PAYE or umbrella in the UK is the defensible default. Treat 1099 or outside-IR35 as an exception you can evidence.
Common mistake
Letting the client dictate classification because it is cheaper for them. The liability usually lands on the agency that engaged the worker.
Related terms
IR35
UK off-payroll working rules that decide whether a contractor working through their own company should be taxed as an employee.
ReadCo-employment
A situation where both the staffing agency and the client are treated as employers of the same worker, sharing legal obligations and liabilities.
ReadEOR
An employer of record legally employs a worker on your behalf in a jurisdiction where you have no entity, handling payroll, tax and compliance.
Read
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