The question is control, not the label
The recurring theme across every test regulators use is control: the more you direct how, when, and where the work is done — and the more the worker is economically dependent on you — the more they look like an employee, regardless of what the paperwork says. A true subcontractor runs their own business: they set their own hours and methods, use their own tools, can work for others, and take on profit-and-loss risk. A worker you schedule, supervise, equip, and rely on full-time looks like an employee no matter what you call them.
The tests regulators apply
There is no single national test, which is part of what makes this hard — different agencies and states apply different standards, and you have to satisfy the strictest one that applies to you.
- IRS common-law test — weighs behavioral control, financial control, and the relationship type. Used for federal tax classification.
- DOL economic-reality test — under the Fair Labor Standards Act, asks whether the worker is economically dependent on you or genuinely in business for themselves.
- State "ABC" tests — several states (California’s AB5 being the strictest) presume employee status unless you prove all of: (A) freedom from control, (B) work outside your usual business, and (C) the worker is independently established.
Why misclassification is expensive
Treating a worker as a 1099 subcontractor when they are legally an employee exposes you to back payroll taxes, unpaid overtime, workers’ compensation gaps, and penalties — often surfacing all at once when an injured "sub" files a claim or a worker reports unpaid wages. For a contractor, the workers’ comp gap is especially dangerous: if a misclassified worker is hurt on your site and is found to be your employee, you may be liable as though uninsured.
How the two differ day to day
Beyond the legal test, employees and subcontractors are simply run differently, and your software should reflect that. Employees are your crew: you track their time, run their payroll, and give them full access to the jobs they work. Subcontractors are external companies you bring onto specific jobs with limited, scoped access — you are coordinating with another business, not managing a worker.
In Vexor
Vexor models this split directly: employees are managed in your workspace with time tracking and full job access, while subcontractors connect by invite to specific jobs with read-only, per-job-scoped visibility. Vexor does not make the legal classification for you or generate 1099s — that is your accountant’s and attorney’s call — but it keeps the two relationships operationally distinct.