1099 or W-2? What Florida Small Business Owners Need to Know Before Paying Workers as Independent Contractors

I pay them as a 1099 contractor, so I don't have to put them on payroll.

A statement like that can create a problem for a small business owner.

Many business owners assume they can decide whether someone is an employee or an independent contractor based on how they want to pay the person but worker classification does not work that way.

Florida businesses should pay particular attention to worker classification because treating an employee as an independent contractor can create payroll and tax problems later.

1099 vs. W-2: What's the Difference?
A W-2 employee and a 1099 independent contractor have very different working relationships. 

An employee generally works as part of the employer's business. The employer handles the applicable payroll tax withholding and reporting requirements and pays unemployment/re-employment taxes and the employer's share of Social Security and Medicare taxes.

An independent contractor generally operates an independent business and provides services to clients or customers. The business hiring the contractor generally does not withhold employment taxes from payments to a legitimate independent contractor.

Can I Just Decide to Pay Someone as a 1099?
No. A business cannot make someone an independent contractor simply by issuing a Form 1099-NEC.
The IRS looks at the facts of the working relationship when determining whether someone is an employee or an independent contractor. A written agreement calling someone an independent contractor does not automatically settle the question either. (IRS)

Florida uses its own criteria when determining whether a worker is an employee for purposes of Florida reemployment tax. The way a worker is treated in practice matters far more than the label printed on a contract or tax form.

How Does Florida Determine Who Is an Employee?
Florida's Department of Revenue uses common-law criteria when determining whether a worker is an employee for reemployment tax purposes. The state considers several factors, including the amount of control the business has over the worker and how the relationship operates.

Some of the questions a business should consider include:

• Who controls how the work is performed?
• Does the worker operate a separate business?
• Who provides the tools and equipment?
• Where does the work take place?
• How is the worker paid?
• How long has the relationship continued?
• Does the worker perform services that are part of the company's regular business?

​Florida's Department of Revenue identifies 10 factors that may be considered and states that the extent of control over the details of the work is the most important factor. No single factor necessarily determines the worker's classification. (Florida Department of Revenue)

Example:
Consider a dog grooming business with multiple Florida locations. The business pays its groomers a percentage of the revenue generated from each grooming appointment. The owner gives the groomers 1099s at the end of the year and considers them independent contractors.

Payment by commission or by the job does not settle the classification question though. A closer look at the relationship could raise other questions. 

Who schedules the groomers? Who provides the grooming facility and equipment? Who sets the prices charged to customers? Who handles the customer relationships? Does the groomer have a separate grooming business and work for other customers? How much control does the business have over the way the grooming services are performed?

Each answer provides information about the actual working relationship.

Florida's worker classification rules specifically include the method of payment as one factor. A worker being paid by commission, by the job or as a percentage of revenue does not automatically make that person an independent contractor. (Florida Department of Revenue)

What About an Independent Contractor Agreement?
A written agreement can describe the relationship between a business and a worker, but the language in the agreement does not control everything. Suppose a business has a worker sign an agreement stating that the worker is an independent contractor. The worker may still be considered an employee by the state or Fed if the actual relationship has the characteristics of employment.

The IRS specifically considers the actual facts and circumstances of the relationship. Florida's Department of Revenue takes a similar approach for reemployment tax purposes. (IRS)

A contract can be one piece of the analysis but the way the business and worker actually operate is typically much more important.

What Does the IRS Look At?
The IRS generally considers three broad categories when determining whether someone is an employee or independent contractor.

Behavioral Control
Who has the right to control how the worker performs the job? Instructions about when and where work is performed can be relevant. Training and detailed instructions about how work should be done can also point toward an employment relationship.

Financial Controls
Who controls the business and financial aspects of the worker's activities? Factors can include the worker's investment in equipment, unreimbursed business expenses, how the worker is paid and whether the worker offers services to other customers.

Type of Relationships
The IRS also considers the relationship between the parties. Written agreements, the permanency of the relationship and whether the worker receives employee-type benefits can all provide relevant information (IRS) but the IRS does not rely on one factor alone. The entire relationship needs to be considered.

Florida and Federal Rules Can Be Different
Worker classification becomes more complicated because different laws can use different standards.
The IRS has its own rules for federal employment tax purposes. Florida has its own criteria for determining employee status for reemployment tax. Federal wage-and-hour laws also have their own rules for determining whether someone is an employee under the Fair Labor Standards Act.

The U.S. Department of Labor proposed changes to its independent-contractor analysis in February 2026. Employers should be careful about relying on an old article or online checklist when evaluating a worker's classification. (U.S. Department of Labor)

A classification that works for one purpose does not necessarily answer every question under another law.

What Can Happen If a Worker Is Misclassified?
The consequences can be significant when an employee has been treated as an independent contractor.
A business may discover that payroll taxes should have been withheld or paid. Florida reemployment tax may also need to be addressed.

Recordkeeping can become another issue because employers have different requirements for employees than they do for independent contractors. Wage-and-hour issues can arise as well. An employee who was incorrectly classified as an independent contractor may have been entitled to overtime or other protections under applicable law for example.

Florida's Department of Revenue also states that intentional misclassification of employees as independent contractors is a felony under Florida law. (Florida Department of Revenue)

The potential cost can become much larger when several workers have been classified incorrectly over an extended period.

What Should You Do If You Think You Have a Classification Problem?
Start by looking at how the relationship actually works.

• Who controls the worker's schedule?
• Who controls how the work is performed?
• Who provides the equipment?
• Does the worker operate an independent business?
• Does the worker have other customers?
• How permanent is the relationship?
• How is the worker paid?
• Does the worker perform services that are part of your regular business?

A business that discovers a potential classification problem should consider getting professional advice before making major changes. Changing a worker from 1099 to W-2 going forward may be necessary, but the business may also need to address earlier periods. Prior payroll taxes, Florida reemployment tax, overtime and other issues could need to be reviewed depending on the circumstances.

A payroll company can help with the payroll side of the process. An employment attorney or tax professional may also be appropriate when the underlying classification or potential liability needs to be evaluated.

What About E-Verify?
Worker classification can also lead to other employment questions. Florida law requires private employers with 25 or more employees to use the federal E-Verify system for new employees, subject to the requirements of the law. Employers covered by the requirement also have certification obligations connected with their reemployment assistance filings. (Florida Senate)

E-Verify becomes relevant once a worker is properly classified as an employee. Businesses should review the current requirements to determine whether the law applies to them.

A 1099 Is Not a Shortcut Around Payroll
A Form 1099-NEC is used to report certain payments to independent contractors. The form itself does not determine whether someone qualifies as an independent contractor. Florida businesses should take a close look at workers who have been paid as contractors, especially when those workers regularly work for the business and operate under the direction of the business. Getting the classification right at the beginning can prevent a much bigger payroll problem later.

If you have been paying workers as 1099 contractors and are starting to question whether they should actually be employees, consider having the relationship reviewed before simply changing the workers over to payroll.

Need Help With Florida Payroll?
SwiftChecks helps Florida small businesses with payroll processing and payroll tax filings.

If you're starting a business, hiring employees or questioning whether workers you've been paying as 1099 contractors should be on payroll, give SwiftChecks a call at 914-332-4800 or visit swiftchecks.com.

Frequently Asked Questions

Can I pay my Florida employees as 1099 contractors?

A business cannot simply choose contractor status for a worker who meets the applicable definition of an employee. Worker classification depends on the actual relationship and the law being applied.

Does giving someone a 1099 make them an independent contractor?

No. A Form 1099-NEC reports certain payments made to a worker. The form does not determine the worker's legal or tax classification. (IRS)

Does paying someone by commission make them a 1099 contractor?

No. Payment by commission is one factor that can be considered when evaluating worker classification. Other aspects of the working relationship also matter.

Can an independent contractor work at my business location?

Yes. Working at the company's location does not automatically make someone an employee. The location of the work is one factor among several that can be considered.

Do Florida employees have to be paid through payroll?

Employees generally need to be treated as employees for applicable payroll tax and employment-law purposes. Legitimate independent contractors generally are not paid through employee payroll.

Does Florida require E-Verify?

Florida generally requires private employers with 25 or more employees to use E-Verify for new employees. Employers should review the current requirements to determine whether the law applies to their business. (Florida Senate)