Is a fractional executive 1099 or W-2?

What is being tested

The IRS looks at the whole relationship rather than any single factor, grouped traditionally into three areas.

Behavioural control. Whether the business directs how the work is done, not just what result is wanted. Setting hours, prescribing methods and requiring training all point towards employment.

Financial control. Whether the worker has a real business: their own tools, their own overheads, the chance of profit or loss, and other clients. A fractional executive serving several companies through their own entity looks very different from one engaged exclusively.

The relationship itself. Whether there is an indefinite expectation of continued work, whether benefits are provided, and whether the work is a core function of the business rather than a defined engagement.

Why the state matters as much as the IRS

This is where American classification diverges from the British version. Several states apply a stricter test than the federal one, and some use an ABC test, under which a worker is presumed to be an employee unless the business can show all three conditions are met. Those conditions typically include that the work sits outside the usual course of the hiring business, which is a genuinely difficult bar for a finance or marketing seat inside a company.

The practical consequence: an arrangement that is comfortably a contract at federal level can still fail where the work happens. Ask which state before assuming.

Who carries the risk

The engaging business, almost entirely. If a classification is found to be wrong the company is generally liable for the employment taxes that should have been withheld, with penalties and interest, and potentially for benefits and protections owed. The executive is rarely the one pursued.

That is worth knowing because it reverses the usual intuition. In the UK, for a small client, the responsibility for deciding sits with the worker. In the US it sits with the company, which means the company should be the one taking advice and writing the agreement carefully.

What a well-structured engagement looks like

A defined scope rather than an open-ended role. Payment against a retainer or deliverables rather than hours logged like a timesheet. The executive using their own equipment, choosing their own method, and genuinely serving other clients. No company email address that makes them look like staff, no performance review cycle, no benefits. And a written agreement that describes what will actually happen rather than a template that describes independence the working relationship will not support.

The last one matters most. A contract saying contractor while the relationship looks like employment is the worst of both, because it is evidence that the parties knew.

Where getoperators sits

Outside the engagement entirely. A company books an operator directly and contracts with them; we take no commission and are not in the payment chain, so we are not the engaging business and we make no classification determinations for anybody.

The British equivalent of all this is on the IR35 page, and it works almost exactly the other way round on the question of who decides.

Common questions