1099 or W-2? Classifying Roofing Crews Without Getting Burne | Hommy
1099 or W-2? Classifying Roofing Crews Without Getting Burned
Your crew can pass the Texas test and still fail the federal one, because the federal test asks whether the work is integral to your business. For a roofing company, roofing labor always is.
Hommy
July 17, 2026 · 13 min read
There is no single test for whether your crew is a subcontractor or an employee. There are at least three, they run at the same time, and they can reach different answers on the same crew. That is the part that catches roofing companies out.
General information, not legal advice
Worker classification is fact-specific and the rules change, particularly at the federal level. This is general information, not legal or tax advice. Talk to an employment attorney or CPA about your actual crews before making changes.
Three tests, three different questions
The IRS applies a common law test built on three categories: behavioral control, financial control, and the type of relationship. There is no fixed number of factors and no single deciding one.
The Fair Labor Standards Act applies an economic reality test. As currently codified in federal regulation it weighs six factors: opportunity for profit or loss through managerial skill, investments by both sides, permanence of the relationship, nature and degree of control, whether the work is integral to the business, and skill and initiative.
Texas applies its own test for unemployment tax, and it is narrower than both. Under the Labor Code, service for wages is employment unless the individual performance is and will continue to be free from control or direction, under the contract and in fact. One prong, control only.
Texas is not an ABC state. Its test asks about control and nothing else. The federal economic reality test asks about control as just one of six factors, and one of the other five is whether the work is integral to your business.
For a roofing company, roofing labor is integral by definition. So a crew can satisfy the Texas control test and still look like employees under the FLSA, because the federal analysis weighs permanence and integrality that Texas simply does not ask about.
This is exactly why the standard advice, project-based pay rather than hourly, crews with their own tools and their own insurance, multiple customers, a written contract, does real work. Those facts move the factors the federal test cares about, not just the one Texas cares about.
The federal rule has moved repeatedly, so check before you rely on it
The federal independent contractor regulation has been rewritten more than once since 2021, and its enforcement posture has shifted separately from what is written in the regulation. The six-factor test above is what is currently codified. Confirm the current Department of Labor position before making a classification decision on the strength of it.
What misclassification actually costs
The IRS side, and the discount you can lose
If you misclassified without intending to, federal law provides reduced assessment rates rather than the full unwithheld amount. Under the reduced-rate provisions, where you filed 1099s the assessment runs roughly 1.5 percent of wages for income tax withholding plus 20 percent of the employee share of FICA, with employer FICA at the full rate. Where you did not file 1099s, those rates double.
Here is the part worth taking seriously: the reduced rates do not apply where there was intentional disregard of the withholding requirement. Deliberate misclassification loses the discount entirely and exposes the full unwithheld amount. The difference between a mistake and a decision is, in dollar terms, enormous.
There is also a safe harbour worth knowing about. Long-standing relief can protect an employer that had a reasonable basis for its treatment, filed consistent returns, and never treated similar workers as employees. Consistency matters: treating one crew as employees and an identical crew as subs undermines it.
The wage-and-hour side
Under the FLSA, an employer that misclassified owes unpaid minimum wage or overtime, plus an equal additional amount as liquidated damages, plus the employee reasonable attorney fees and costs, which are mandatory rather than discretionary. Willful violations carry criminal exposure.
The doubling is the thing to understand. A back-wage exposure of 40,000 dollars is not a 40,000 dollar problem, it is an 80,000 dollar problem plus the other side legal bill.
Workers compensation, where roofers actually get hurt
Texas: coverage is optional, and that is a real decision
Texas is unusual. Under the Labor Code, except for public employers, an employer may elect to obtain workers compensation coverage. Going without is legal, and companies that do are called non-subscribers.
What you give up is specific and it is severe. An employer without coverage loses three common law defenses in an employee injury suit: contributory negligence, assumption of risk, and the negligence of a fellow employee.
Think about what those three defenses normally do in a roofing injury case. The worker was not tied off. The worker did something careless. Another crew member caused it. Those are exactly the arguments a non-subscriber cannot make.
To be fair about it, non-subscriber status is not strict liability. The injured worker still has to prove the employer was negligent. But you are defending that case without the defenses that usually win it.
Texas: the written agreement that shifts coverage
A general contractor and a subcontractor may agree in writing that the GC will provide workers compensation coverage to the sub and the sub employees. That agreement makes the GC the employer for workers compensation purposes only.
That last clause is doing a lot of work. It shifts comp responsibility without converting the sub into your employee for other purposes.
Florida: one employee, not four
Florida runs the opposite way and roofing sits on the strict side of it. Non-construction employers need coverage at four or more employees. Construction employers need coverage at one or more.
If you are a construction employer in Florida with a single employee, you need workers compensation. There is no small-shop grace period.
Florida: you are liable for your uninsured subs
Florida statute makes the contractor liable for securing payment of compensation to employees of subcontractors, except where the sub has secured that payment themselves. If you end up paying because your sub did not carry coverage, you are entitled to recover what you paid from the sub, plus interest, unless you agreed in writing to provide the coverage.
In practice that recovery right is worth exactly as much as the sub is worth. Uninsured subs are frequently uncollectable, which is why this is a prevention problem rather than a litigation problem.
“An expired certificate of insurance is not your sub problem. At audit, and after an injury, it is yours.”
The Hommy Team
Certificates of insurance: the boring habit that saves you
Collect a certificate from every sub, for general liability and workers compensation, and collect it from the agent rather than from the sub.
Then do the part most companies skip:
Track expiry dates, and refuse to let a crew start on an expired certificate. Coverage that lapsed in March does not help you in June.
Check that the described operations actually cover roofing. Cheaper policies sometimes exclude elevated work, which is the only kind you do.
Keep the certificates for the audit, not just for the job. Your own insurer will audit you, and uninsured subs typically get charged back to you as if they were payroll.
Keep the written subcontract with them.
That last point is the quiet cost. If you cannot produce evidence that a sub carried their own coverage, your carrier will generally treat the money you paid them as payroll and charge you premium on it. The certificate file is not paperwork, it is money.
What a defensible subcontractor relationship looks like
No single fact decides it, which is the whole point of a multi-factor test. But the relationships that survive scrutiny tend to share these:
The sub is a real business entity, not a person with a 1099.
They carry their own general liability and workers compensation, and you have current certificates.
They supply their own tools and equipment.
They work for other customers, and can show it.
There is a written contract, scoped per project.
Pay is per project or per square, not hourly.
They control how the work gets done, set their own hours, and can send their own people.
They can turn down work from you without consequence.
Conversely, the arrangements that fail tend to look like: the same crew, every week, all year, working only for you, using your equipment, paid by the hour, told when to show up. At that point the 1099 is describing a wish rather than a relationship.
Roofing leans heavily on subcontracted crews for real reasons, including seasonality and how fast volume changes after a storm. None of that is illegitimate. What gets companies in trouble is running an employment relationship and labelling it something else.
