Almost every contractor, cleaning company and restaurant in Las Vegas has at some point paid a worker "on a 1099" to keep things simple. Sometimes that is correct. Often it is not — and the difference is not decided by what you and the worker agreed, but by how the work actually happens.
Why it matters
For a W-2 employee, the employer withholds income tax, pays half of Social Security and Medicare (7.65%), pays federal and Nevada unemployment insurance, carries workers' compensation, and owes Nevada's Modified Business Tax above the exemption. For a 1099 contractor, the business pays the invoice and issues a form in January. The cost gap is roughly 10–15% of wages before workers' comp — which is exactly why the temptation exists.
How the IRS decides
The IRS looks at the whole relationship through three lenses. No single factor decides it.
| Category | Points toward employee | Points toward contractor |
|---|---|---|
| Behavioral control | You set the hours, the method, the tools, and train them | They decide how and when the work is done |
| Financial control | Paid hourly or weekly, no chance of loss, you provide equipment | Paid by the job, can profit or lose, own tools, work for others |
| Relationship | Ongoing, indefinite, core to your business, benefits provided | Project-based, written contract, they carry their own insurance |
A drywall hanger who shows up when you say, uses your scaffolding, is paid by the hour and works only for you is an employee under this test no matter what the paperwork says.
Nevada's stricter test
For state purposes — unemployment insurance and workers' compensation — Nevada applies a version of the "ABC" style analysis under NRS 612. A worker is presumed to be an employee unless the business can show the worker is free from control, performs work outside the usual course of the business, and is customarily engaged in an independently established trade. Passing the IRS test does not automatically pass Nevada's.
The 2025 federal rule
The Department of Labor's current interpretation under the Fair Labor Standards Act uses an "economic reality" test — is the worker genuinely in business for themselves, or economically dependent on you? Contractors who have one client, no business license, no other customers and no equipment of their own rarely pass.
What misclassification costs
- Back employment taxes, both halves, for every misclassified worker, plus interest.
- Penalties for failure to withhold and failure to file — in bad cases up to 100% of the unpaid tax under the trust fund recovery penalty, assessed personally against the owner.
- Nevada unemployment insurance back contributions and penalties.
- Workers' compensation exposure: if an uninsured "contractor" is injured, the business is liable directly.
- Wage and hour claims for overtime never paid.
A single injured worker who turns out to be an employee has closed more small Las Vegas contractors than any tax audit. Workers' compensation is the risk most owners underestimate.
When 1099 is correct
Genuine contractors exist. A licensed electrician you hire for one job, a bookkeeper who serves twenty clients, a marketing freelancer with her own LLC, a sub-contractor with their own crew and insurance. The pattern: they have a business, they have other customers, they control the work, and they can lose money on it.
Protecting yourself with real contractors
- Collect a signed Form W-9 before the first payment.
- Get a copy of their business license and certificate of insurance.
- Use a written agreement that describes a deliverable, not hours.
- Pay against invoices, not on a schedule.
- Issue Form 1099-NEC by January 31 for anyone paid $600 or more in the year.
How to fix it if you have been doing it wrong
The IRS Voluntary Classification Settlement Program (VCSP) lets an employer reclassify workers going forward and pay a reduced amount — roughly 10% of one year's employment tax liability — with no interest or penalties, provided you are not already under audit. For most small businesses this is dramatically cheaper than being caught. Nevada does not have an equivalent program, so state exposure has to be assessed separately.
We review worker classification as part of every payroll setup, prepare W-9 and 1099 packages, and handle VCSP applications. If you have crews on 1099s and are not sure, ask before an injury or a notice forces the question.
This guide is general information and not tax advice for your specific situation. Rates and dates reflect information available at the time of update; confirm with the Nevada Department of Taxation or with us.