There is no single nationwide “1099 test”
A small business can classify the same working relationship under several laws. The IRS common-law test addresses federal employment taxes. The Fair Labor Standards Act has its own employee analysis. States can impose different tests for wage laws, unemployment insurance, workers’ compensation, or other programs.
That means a memo saying “passes the IRS test” is not a national safe harbor. Before classifying a worker, identify which law, which state, and which agency controls the obligation you are trying to answer.
California shows how different a state test can be
California’s Labor and Workforce Development Agency explains that the ABC test generally presumes a worker is an employee unless the hiring entity establishes all three conditions, subject to statutory exemptions and situations in which another test applies.
The three conditions are:
A — Freedom from control and direction. The worker must be free from the hiring entity’s control and direction in performing the work, both under the contract and in fact.
B — Work outside the usual course of the hiring entity’s business. This asks whether the work is outside what the business ordinarily does. A bakery hiring an outside plumber to repair a pipe presents a different fact pattern from a bakery regularly using “contractor” bakers to make its products.
C — Independently established trade, occupation, or business. The worker must customarily engage in an independently established business of the same nature as the work performed.
Failing any required prong generally means the ABC test is not satisfied. But California law contains exemptions and alternate rules for specified occupations and relationships, so do not stop after reading a three-line summary. Check the current statute and agency guidance for the actual engagement.
Build a jurisdiction matrix before onboarding
For each worker location, create a short table with rows for:
- federal employment tax — IRS common law;
- federal minimum wage/overtime — current FLSA framework;
- state wage law;
- state unemployment insurance;
- state workers’ compensation;
- any industry-specific licensing or labor rule.
In the next column, name the agency and link to its current official guidance. In a third, record the facts that matter under that test. This prevents one favorable answer from being copied into unrelated compliance files.
A remote workforce makes this especially important. The company’s headquarters state is not always the only jurisdiction that matters when a worker performs services elsewhere.
Do not assume every state uses California’s ABC test
Some jurisdictions use ABC-style tests; others use common-law, economic-reality, hybrid, or statute-specific standards. The same state can apply different definitions in different programs. Even where “ABC” is the label, wording and exemptions can differ.
Avoid publishing or using a spreadsheet that says “ABC state: yes/no” without the law, purpose, effective date, and exemption notes. A simplified map can become dangerously stale when legislatures or courts change the rule.
For a real hiring decision, open the current labor, unemployment, revenue, and workers’ compensation guidance for the worker’s state. If the relationship is material or close, obtain qualified local advice.
Compare the same fact across tests
Suppose a marketing agency hires a person to perform the same recurring client campaign work as its staff. Under IRS common law, the review considers behavioral control, financial control, and relationship. Under an ABC test, the “usual course of business” prong may become especially important. Under the FLSA, economic dependence is analyzed under the applicable federal framework.
The fact has not changed, but the legal question has. This is why “our contractor owns an LLC” or “they set their own hours” cannot answer every test.
Keep the state file current
Record the worker’s work location, date reviewed, governing test, official source URL, exemption analysis if any, and the person who approved the classification. Set a review trigger for moves, role changes, renewals, or legal changes.
Do not copy dollar thresholds, penalty amounts, or exemption lists from an old article into the permanent file. Link to the official agency source and verify it when acting.
The result should be a classification decision that survives a change in question. If payroll asks about federal withholding, the IRS analysis is ready. If the state unemployment agency asks about coverage, the business can show the separate state test rather than handing over a generic “1099 checklist.”