W-2 vs. 1099: classifying cleaners, techs and crews

Why this question keeps coming up

Home services are full of independent operators. In 2023 there were 1,095,927 cleaning businesses with no paid employees, against 67,799 employer establishments^[4], and 516,572 landscaping nonemployers against 117,969 employer establishments^[5]. The trades have the same pattern on a smaller scale, with 178,663 plumbing, heating and air-conditioning nonemployers and 159,693 electrical nonemployers^[6][7].

With that many solo operators around, it is tempting to bring people on as 1099 contractors: no payroll taxes, no overtime, no workers’ compensation premium, and the worker often prefers a bigger gross check. The problem is that the label on the agreement does not decide the question. Agencies and courts look at how the work is actually done. A cleaner who works the schedule you set, at homes you book, using your checklists and supplies, will usually be treated as your employee whatever the paperwork says.

The federal wage-law test: economic reality

Under the Fair Labor Standards Act, the question is whether the worker is economically dependent on your business or is in business for themselves. The Department of Labor’s fact sheet lists the factors it looks at: opportunity for profit or loss depending on managerial skill; investments by the worker and the employer; permanence of the work relationship; nature and degree of control; whether the work performed is integral to the employer’s business; and skill and initiative^[1].

The rules themselves are in flux, so check the current position before you rely on any one version. The fact sheet says the 2024 rule remains in effect for private lawsuits, while the Wage and Hour Division’s current enforcement position is set out in Field Assistance Bulletin 2025-1 of May 1, 2025, and a new proposed rule was announced on February 26, 2026^[1]. Under every version, the same practical facts weigh heavily in home services: who sets the schedule, who sets the price, who supplies the equipment and whether the person can grow their own business.

The IRS test: control and independence

For federal employment taxes, the IRS looks at the whole relationship and the extent of the right to direct and control the worker, grouped into three categories^[2]:

• Behavioral control: whether the company controls, or has the right to control, what the worker does and how they do the job.
• Financial control: whether the company controls the business side of the job, such as how the worker is paid, whether expenses are reimbursed and who provides tools and supplies.
• Type of relationship: whether there are written contracts or employee-type benefits, whether the relationship is expected to continue, and whether the work is a key part of the business.

If it is still unclear, either the business or the worker can file Form SS-8 to ask the IRS for an official determination, which the IRS says may take at least six months^[2].

State tests: the ABC test and others

Several states apply a stricter test, at least for some purposes such as wage law or unemployment insurance. California is the best-known example. Its ABC test treats a worker as an employee unless the hiring business shows that the worker is free from its control and direction in performing the work, performs work outside the usual course of its business, and is customarily engaged in an independently established trade, occupation or business^[3]. The hiring entity must prove the independent business operation actually exists when the work is performed^[3].

Other states use the ABC test only for unemployment insurance, use a common-law control test, or use their own list of factors. If you operate in more than one state, check each state’s labor department and unemployment agency, because a worker can be a contractor under one test and an employee under another.

Common home services situations

For real subcontractor relationships, run them like business-to-business deals: written scopes, bids, the sub’s own insurance certificate and license, and invoices instead of timesheets. Our guide to scheduling subcontractors covers the operating side.

What misclassification costs

If a worker you paid as a contractor is found to be an employee, the business can owe back overtime and minimum wage, the employer share of payroll taxes it did not pay, unemployment and workers’ compensation premiums, and penalties that vary by state. The exposure grows the longer the arrangement runs and the more people it covers. It also tends to surface at the worst moment: a worker injured on a job with no workers’ compensation coverage, or a former worker who files for unemployment and lists your company.

Pay plans are where classification and wage law meet. A tech paid by commission or a crew paid by the square is still owed overtime if they are an employee; see commission pay for techs and FLSA overtime with commissions.

A classification checklist

1. 01

   List everyone you pay on a 1099

   Include cleaners, helpers, part-time techs, crew members and office help paid as contractors.

2. 02

   Answer the control questions

   Who sets their schedule, assigns jobs, sets prices, trains them and checks their work?

3. 03

   Answer the business questions

   Do they have their own business name, insurance, license, tools, advertising and other clients?

4. 04

   Check your core service

   If they do the same work your business sells, assume a strict state test will treat them as employees.

5. 05

   Fix the clear cases

   Move workers who look like employees onto payroll from a set date and get advice on any back liability.

6. 06

   Paper the real contractor relationships

   Written agreements, bids, certificates of insurance, licenses and invoices, kept on file.

7. 07

   Review once a year

   Relationships drift: a sub who started with many clients may now work only for you.

Signs a contractor relationship has drifted

Many misclassification problems start as genuine subcontracting and drift over time. A helper who once took jobs from several companies now works only for you. A cleaner who set her own rates now works from your price list. Watch for these signals and review the arrangement when you see them:

• The person has stopped working for anyone else and is booked by your office every day.
• You started providing the van, the uniform, the supplies or the equipment.
• Your dispatcher assigns their jobs and sets their arrival windows.
• They are paid by the hour or the day rather than by bid or project.
• You train them on your methods and check their work like any employee.
• Customers think they work for you, and your reviews mention them by name.

Questions to take to your adviser

1. Which tests apply to us in each state where we work, for wages, taxes, unemployment and workers’ compensation?
2. If we reclassify workers now, what back liability might we have, and is there a program to resolve it?
3. For the subcontractors we keep, what should the agreement, insurance and invoicing look like?
4. How should we handle crew members paid by a lead who is himself a contractor?
5. What records should we keep to show a subcontractor is running an independent business?

Moving a team from 1099 to W-2

Owners who convert a 1099 team usually worry about two things: the higher cost and the reaction of workers who liked the gross check. Model both. Total compensation costs for private employers averaged $46.89 an hour in June 2026, with benefits making up 30.0%^[8][9], so the cost of an employee is well above the wage. Rebuild your pricing with that full cost, then explain the change to workers in terms of what they gain: overtime, workers’ compensation if they are hurt, unemployment insurance, and an employer paying half of payroll taxes. Some workers will choose to stay independent and work elsewhere; that is a better outcome than an arrangement that cannot survive a claim. Our guide to hiring a CSR covers the office side of building an employee team.