An Atlanta commercial cleaning business owner decided to restructure her workforce. Instead of W-2 employees with payroll taxes, health insurance contributions, workers’ compensation premiums, and unemployment insurance, she would “promote” all eighteen of her cleaners to the status of independent contractors. The legal paperwork was clean: new 1099 agreements, signed individually with each worker, retaining the legal language her attorney had drafted. The economics were compelling: the cleaners would receive a higher gross hourly rate (because the company was no longer paying employer-side taxes), keeping more of each paycheck. The business would shed roughly thirty percent of its labor cost overhead. Everyone seemed to win.
Eighteen months into the new arrangement, one of the cleaners filed for unemployment after a commercial cleaning contract ended unexpectedly and her hours dropped. The state agency processing her unemployment claim noted that 1099 contractors aren’t normally eligible for unemployment. They opened a review of her actual employment status. They found that the cleaner worked exclusively for this one company, had been doing so for over four years, was scheduled by the company’s dispatcher, used the company’s cleaning supplies and equipment, wore a company-provided uniform, and was paid at a rate the company set unilaterally. The state agency reclassified her as a W-2 employee. They notified the Internal Revenue Service.
The IRS opened a worker classification audit on the entire eighteen-person crew. The findings, six months later, were uniform: all eighteen were misclassified employees. Total back federal payroll taxes assessed plus penalties and interest: $190,000. The business owner couldn’t pay. The business closed. The eighteen workers, now without their misclassified income, applied for unemployment one by one, each application generating further state-level tax assessments against the now-defunct company and personal liability for the owner under Section 6672 of the Internal Revenue Code.
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Open your trialWhat the IRS twenty-factor test actually measures
The IRS twenty-factor test, also called the common-law test or Revenue Ruling 87-41, is the standard the IRS uses to determine whether a worker is an employee or an independent contractor for federal tax purposes. The factors group into three buckets: behavioral control (does the company control how the work is done), financial control (does the worker have economic independence), and the relationship of the parties (how is the relationship documented and how does it function in practice).
No single factor is decisive. The IRS weighs the overall picture. But several factors carry more weight than others, and behavioral control is consistently the most influential. If the company tells the worker when to start work, when to take breaks, when to finish, what tools to use, what wearing to wear, and what techniques to apply, those are control signals that point heavily toward employee status. The written contract calling the worker an independent contractor doesn’t undo behavioral control evidence. The IRS looks past paperwork to operational reality.
Is GPS tracking “behavioral control”?
This is the question worker classification attorneys debate most actively in 2026. The IRS position, articulated in several private letter rulings and informal guidance, is nuanced: tracking the worker’s location during work is not, by itself, behavioral control. Mandating the tracking, and using the tracking data to direct the worker’s behavior in real time, is behavioral control.
The distinction matters operationally. If a contractor must use a specific company-controlled app, must clock in at company-specified times, must follow a company-specified route, and is penalized by the company for deviating from the GPS-tracked schedule, that’s behavioral control that points to employee status. If the contractor uses GPS time tracking voluntarily because it makes their invoicing easier, because it documents work performed for the client, because it eliminates billing disputes, because they choose to use it as part of their professional toolkit, that’s a different signal entirely. The contractor controls the tool. The tool is documentation, not direction.
For businesses that genuinely use independent contractors, the architectural answer is to let the contractor adopt the time tracking tool as part of their service offering. The contractor logs hours into the system, generates invoices from the data, and submits invoices for payment. The company pays the invoice. The data passes through the system but the contractor, not the company, controls when and how it’s recorded.
The financial control factors
Beyond behavioral control, the IRS examines whether the worker has economic independence. Does the worker have significant investment in tools and equipment? Do they pay their own business expenses? Do they have opportunity for profit or loss based on their business judgment? Are they available to the relevant market for other clients? Are they paid by the job or by the hour? Real independent contractors typically score high on most of these factors. They own their own equipment, pay for their own supplies, accept the risk of unprofitable engagements, market themselves to multiple clients, and price their work at rates they negotiate.
