Every week we get a client who is worried about this: "My employee wants to be paid as a 1099 because they pay less tax. Is that OK?"
The short answer is: you do not get to decide. The IRS, the DOL, and the Massachusetts AGO have objective criteria to classify a worker. Misclassify and you face a fine of up to 3× the wages paid + back taxes + interest. Let's break it down.
The 3-axis test
Employee
W-2 (employee)
- You control their schedule
- You provide tools / equipment
- They work only for you (full-time)
- Direct supervision of work
- Ongoing training
- Benefits (PTO, health, etc.)
Independent contractor
1099 (contractor)
- They set schedule/location/method
- They use their own tools
- They serve multiple clients
- They deliver outcomes, not process
- They have expertise you do not
- They invoice via their own business
In MA specifically, the rule is the so-called ABC Test. To legitimately be a 1099, the worker must pass all three:
- A: They are free from control and direction in how the work is performed
- B: Their service is outside the usual course of your business
- C: They have an independently established business of the same kind
I see clients in construction who hire subs as 1099 and pass (A) and (C) easily — but stumble on (B). If your business is remodeling and the person swings a hammer for you, their service is the usual course of your business. Watch out.
What you pay in each case
| Paying $1,000 | W-2 | 1099 |
|---|---|---|
| Net the worker takes home | ≈ $800 (after FICA+fed+state) | $1,000 |
| Cost to your business (FICA employer) | + $76.50 (7.65%) | $0 |
| Cost to your business (workers comp) | + ~$30 (varies) | $0 |
| Cost to your business (unemployment) | + ~$20 (MA ~2%) | $0 |
| Total out-of-pocket | $1,126.50 | $1,000 |
| Withholding obligation | Yes (you handle) | They self-report |
The cost of getting it wrong
Three clients we serve went through this before Lynx came in:
"I was audited by the DOL. They found that 7 of my 'contractors' were actually employees. We paid $42k in back taxes + $18k in fines. Almost broke us."
The math of the fine in MA is brutal: 3× wages paid in treble damages + back wages + interest. A $50k payment error easily becomes $150k.
How Lynx helps clients classify correctly
- Free initial review — we look at your structure and tag each worker as W-2 or 1099 with reasoning
- If W-2, we run full payroll through Gusto + Zoho Books
- If 1099, we issue 1099-NECs at the end of January for all payments > $600
- We talk to auditors directly if the IRS or DOL questions you
This text is informational. Correct classification depends on each contract and situation — consult a professional before changing how you pay your workers.