One of the most common and most dangerous mistakes small business owners make is misclassifying workers. Calling someone a 1099 contractor when they should be an employee might seem like a simple payroll decision, but it carries real legal and financial consequences. The distinction between employee vs. 1099 isn't about what's convenient or what the worker prefers. It's determined by the nature of the working relationship, and the IRS, Department of Labor, and state agencies