Employer reclassified me from W-2 to 1099 mid-year

I've worked as a graphic designer at a marketing agency for 18 months. For the first year, I was a W-2 employee with benefits — health insurance, PTO, the usual. In January, my employer told me they were "restructuring" and that I'd be reclassified as an independent contractor (1099) going forward.

Here's what has NOT changed: I still work at the same desk, use the same company computer, work the same 9-5 hours, report to the same supervisor, attend all the same meetings, and do the same exact work. The only things that changed are: no more health insurance, no more PTO, and I now have to pay self-employment taxes.

This can't be legal, right? I'm now paying an extra ~15% in self-employment tax and I lost my benefits. Same job, same desk, same everything. I'd estimate this is costing me around $20,000/year between the lost benefits and extra taxes.

What you're describing is textbook worker misclassification, and it's a serious violation. Your employer is almost certainly breaking both federal and state law.

Federal (IRS) analysis: The IRS uses a multi-factor test to determine worker classification. The key factors include behavioral control (when, where, and how you work), financial control (who provides tools, opportunity for profit/loss), and the type of relationship (benefits, permanency, written contracts). Based on your description — same desk, same hours, same supervisor, company equipment — you are clearly an employee under the IRS test. You can file IRS Form SS-8 (Determination of Worker Status) to get an official ruling.

California analysis (if applicable): If you're in California, the ABC test under AB 5 makes this even more clear-cut. Under the ABC test, a worker is presumed to be an employee unless the hiring entity can prove all three prongs:

• A: The worker is free from the control and direction of the hiring entity
• B: The worker performs work outside the usual course of the hiring entity's business
• C: The worker is customarily engaged in an independently established trade or business of the same nature

Your employer fails all three prongs. You're under their control (Prong A fails), graphic design is their core business (Prong B fails), and you're not running your own independent design business (Prong C likely fails).

What to do:

• File IRS Form SS-8 for a classification determination
• File IRS Form 8919 (Uncollected Social Security and Medicare Tax on Wages) with your tax return to pay only the employee share of FICA
• File a wage claim with your state labor department
• Use the 1099 vs W-2 Calculator to quantify your actual losses — it's likely more than the $20K you estimated when you factor in unemployment insurance, workers' comp coverage, and other statutory benefits

CPA here. Adding to what the attorney said — from a tax perspective, this mid-year switch creates a real mess. You'll get both a W-2 and a 1099-NEC for the same tax year. When you file, definitely use Form 8919 as mentioned. This lets you report the 1099 income as wages and pay only the employee share (7.65%) of FICA instead of the full self-employment tax (15.3%).

Also, your employer is going to face penalties for this. The IRS can impose Section 3509 penalties on employers who misclassify workers, and those penalties include the employer's unpaid share of FICA, plus a portion of the income tax that should have been withheld. If the IRS determines this was intentional (which a mid-year switch to the same job strongly suggests), the penalties increase significantly.

I'm in California, so the ABC test applies. Yeah, they fail all three prongs pretty obviously. I'm literally a designer at a design agency working at their office on their computer during their set hours. This is absurd.

I ran the 1099 vs W-2 calculator and the total cost to me is closer to $26,000/year when you factor in the self-employment tax difference, lost health insurance, and lost PTO. That's really eye-opening.

I'm going to file the SS-8 and talk to a California employment attorney. Are there other employees at the company who were reclassified too? If so, could this be a class action situation?

If other workers at the company were similarly reclassified, it could indeed become a class action or a representative PAGA (Private Attorneys General Act) action in California. PAGA is a powerful tool unique to California — it allows employees to sue on behalf of themselves and other aggrieved employees, with penalties of $100 per employee per pay period for initial violations and $200 for subsequent violations.

A California employment attorney will be very interested in this case, especially if multiple workers were affected. Many employment firms handle these cases on contingency, meaning no upfront cost to you. Given the strength of the facts — mid-year reclassification with identical working conditions — this is about as clear-cut as misclassification cases get.

I went through this exact situation about two years ago at a different company. Filed the SS-8, filed a wage claim with the California Labor Commissioner, and also reported it to the EDD (Employment Development Department) for unemployment insurance purposes.

The IRS determination took about 6 months but came back in my favor. The state wage claim resulted in a settlement that covered my extra tax burden plus penalties. The EDD investigation was separate and resulted in the company having to pay back unemployment insurance premiums for all the misclassified workers.

Definitely pursue all three tracks simultaneously — federal (SS-8), state labor commissioner, and EDD. They're separate proceedings and you can do all three at once.