Let’s have a heart-to-heart, business owner to business owner.
I know how tempting it can be to classify workers as 1099 contractors, it seems easier, cleaner, and yes, a lot cheaper. But here’s the problem: misclassifying 1099 workers isn’t just a technical mistake, it’s a legal and leadership issue that can hurt both your team and your business. No payroll taxes, no benefits, no strings attached, right? But if someone is functioning like a full-time employee, treating them like a contractor isn’t just cutting corners, it’s cutting out the foundation of trust and leadership your business needs to grow.
So, what’s the big deal?
1099 contractors are supposed to run their own show. They choose their schedule, use their own tools, work with other clients, and handle their own taxes. If you’re setting their hours, assigning tasks, giving them a company email, and they’re working solely for you… they’re not a contractor. They’re a W-2 employee in disguise.
And that disguise can cost you.
The human side (and the tax side)
When someone is misclassified, they miss out on things like unemployment benefits, workers’ comp, job security, and often have to pay double in taxes. It’s not just a paperwork issue, it’s a people issue. It says, “I need you to commit like an employee, but I’m not going to back you like one.”
That doesn’t set the tone for a business built on leadership, care, or growth.
And yes… the IRS and DOL care too
If they find out (through a complaint, audit, or pure bad luck), you could be looking at $18,000 to $50,000+ per misclassified worker in back taxes, penalties, and fees.
Ouch. And that shortcut? Not looking so short anymore.
Here’s where compliance comes in. The Fair Labor Standards Act (FLSA) provides the rules around employee classification, wages, overtime, and recordkeeping. Following these standards isn’t just about avoiding penalties, it’s about setting up your business to run fairly and legally from the start. You can read more directly from the U.S. Department of Labor’s FLSA guideline.
Lead like you want your team to lead
Your business sets the tone. If you want team members who are responsible, loyal, and motivated, it starts with you showing up the same way. That includes being fair with classification, compensation, and expectations. If you lead with integrity, you’ll attract people who do the same.
And if you’re not sure what side your current workers fall on, I get it. It can be confusing. But ignoring it won’t make it go away.
Need help figuring it out? Reach out. No shame here- just support, clarity, and maybe a little coffee-fueled pep talk. Here’s our page on how working with us works.
