# What is worker classification?

Source: https://launch-rec.com/glossary/worker-classification. Category: Compliance. Market: US and UK.

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.

## 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

- https://launch-rec.com/glossary/ir35
- https://launch-rec.com/glossary/co-employment
- https://launch-rec.com/glossary/eor