My restaurant pays me on a 1099 instead of a W-2. Is that legal?
The short answer
What to check
Say you serve four nights a week on the restaurant’s schedule, in its uniform, using its POS, and a manager assigns your section. At year end you get a Form 1099-NEC instead of a W-2 (illustrative).
| IRS question | What to look at in your job |
|---|---|
| Behavioral control: does the business control, or have the right to control, what you do and how you do it? | Who sets your schedule, section, uniform, steps of service, side work |
| Financial control: does the payer control the business side of the job? | How you’re paid, whether expenses are reimbursed, who provides the tools and supplies |
| Type of relationship: contracts, benefits, how long it lasts | Whether the job is ongoing and whether serving is a key part of the business |
- Keep records now: schedules, texts assigning shifts, the handbook, pay records, your tip log.
- Ask the IRS to decide: you or the business can file Form SS-8. The IRS says a determination can take at least six months.
- At tax time: if you believe you were an employee, Form 8919 figures your share of Social Security and Medicare on that pay. If none of its reason codes fit yet, you enter code G and file Form SS-8 on or before the day you file your return.
- For wage questions (minimum wage, tip credit, overtime), contact the DOL Wage and Hour Division at 866-487-9243.
The IRS warns that code G isn’t a guarantee: if it decides you weren’t an employee, you may be billed the extra tax, penalties and interest. Not tax or legal advice. A tax professional or an employment lawyer can look at your facts.
Plain English
Two agencies, two tests
For taxes, the IRS uses the common-law rules. Under them you’re an employee when the business controls what work you do and how you do it. The IRS says no one factor decides it; the whole relationship counts.
For minimum wage and overtime, DOL uses the Fair Labor Standards Act. DOL Fact Sheet #13 asks whether you’re economically dependent on the employer for work (an employee) or in business for yourself (a contractor). It lists six factors: your chance for profit or loss through managerial skill, investments by you and the employer, how permanent the work is, how much control the employer has, whether your work is integral to the business, and your skill and initiative. It says a worker paid off the books or on a 1099 isn’t necessarily a contractor, and signing a contractor agreement doesn’t make you one.
What changes for your tips and Social Security
- As an employee, you report tips of $20 or more a month to your employer, and your employer withholds Social Security, Medicare and income tax on them. See Do I pay taxes on cash tips?
- Paid as a contractor, nothing is withheld. The IRS says a real independent contractor’s earnings are subject to self-employment tax.
- Form 8919 is for pay you got as a misclassified employee. The IRS says filing it credits those earnings to your Social Security record.
- Form 8919 is not for tips. Tips you didn’t report to an employer go on Form 4137 instead.
- If you really are self-employed, the new federal tip deduction has extra limits. See Self-employed tips and the deduction.
Where to ask
For your tax status: Form SS-8 with the IRS. For unpaid minimum wage or overtime: the DOL Wage and Hour Division, or your state labor office from DOL’s list of state labor offices. Your state may have its own rules.
Common mistakes
- Assuming the 1099 settles it. Neither the IRS nor DOL treats the form as the answer.
- Filing Form 8919 with code G and forgetting to file Form SS-8 by the day you file your return.
- Putting tips on Form 8919. Unreported tips go on Form 4137.
- Throwing away schedules and texts. They show who controlled the work.
Official sources
- IRS: Independent contractor (self-employed) or employee? (common-law rules; Form SS-8)irs.gov
- IRS: About Form SS-8, Determination of Worker Statusirs.gov
- IRS: Form 8919, Uncollected Social Security and Medicare Tax on Wages (who must file, reason codes)irs.gov
- IRS: Independent contractor defined (self-employment tax)irs.gov
- U.S. Department of Labor, Fact Sheet 13: Employee or Independent Contractor Classification Under the FLSAdol.gov
Last verified:
Checked the IRS worker classification page (reviewed May 19, 2026: three categories, six-month SS-8 wait), About Form SS-8, Form 8919 (2025: who must file, reason codes A, C, G, H, the code G warning, not for tips), About Form 8919, Independent contractor defined, and DOL Fact Sheet 13 (revised March 2024).
Still open: DOL’s test is in flux. Fact Sheet 13 says its 2024 rule is being challenged in court and stays in effect for private lawsuits, while DOL’s Field Assistance Bulletin 2025-1 sets a different enforcement position. On February 26, 2026 DOL proposed rescinding the 2024 rule; that proposal was not final when we checked. The IRS common-law test for taxes is separate from DOL’s test.