By Cristin Monnich, Head of Global Compliance Strategy & GM of AOR at Worksuite
As companies head into summer, many leaders breathe a sigh of relief, with the intensity of the 1099 filing season behind them. But don’t let the quiet complace you, instead–capitalize upon it with a strategy for process refinement. Summer is an often overlooked high-risk season for misclassification. Without the proper diligence and controls,, you could be setting your company up for serious compliance exposure.
Every summer, we see a noticeable uptick in gig work with what I refer to as “moonlighters,” informal freelancers such as university professors or even students, picking up side income during their break, while corporate employees test the waters with lower rate contract work. These individuals often lack formal business structures, have limited experience managing business-to-business relationships, and typically don’t carry any business insurance. In short, they don’t resemble independent businesses—and that really matters.
This type of worker profile often raises red flags for auditors. Sole proprietors without a formal business entity or even a business name certificate, are typically the “low-hanging fruit” in employment audits—often the first group auditors will scrutinize. These individuals usually hold full-time jobs, lack additional clients, don’t market themselves as a business, and often don’t carry essential coverages like workers' comp or general liability insurance.
Without meaningful investment in a business infrastructure, they tend to fall short on most worker classification tests. In the absence of key indicators of independence, these workers may not qualify as truly “independent” under many national and local standards—leaving your company exposed to avoidable compliance risks.
Beyond the risk of being flagged in an audit, workers who lack true financial independence as a business also pose a higher risk of filing for unemployment insurance—and listing your company as their last "employer." Perhaps unintentionally, this action (known as a “deferred claim”) can trigger major problems for a former client, prompting an examination by state agencies and potentially opening the door to a company-wide employment audit of all 1099-coded workers. In my experience, this is the single most common scenario that initiates employment audits for companies.
I’ve spent two decades in worker classification, and the same question always comes up: What’s the real risk?
Let’s do the math. If you misclassify a single worker paid $100,000:
Multiply that by 10, 50, or 100 freelancers—and now you’re talking millions. Worse, one lawsuit often triggers a full audit. And in many states (California, for example), penalties can reach $25,000 per willful instance.
These aren’t hypothetical figures—they’re real cases I’ve supported clients through throughout my career. While the numbers referenced may appear U.S.-centric (based on IRS fines, penalties, and interest rates), they only scratch the surface of broader global risks.
One of the more serious concerns when contracting globally is the risk of Permanent Establishment if you're found to be engaging in sham contracting in a country where you haven't established a legal entity. If a former freelance worker is reclassified as an employee, you are retroactively considered their employer—meaning you should have been withholding and filing statutory taxes and contributions all along. This can result in significant tax liabilities, penalties, and broader compliance exposure, potentially barring your firm from conducting business in that country.
Even if you’re not ramping up hiring this season, now is the time to take stock:
At Worksuite, we’ve embedded classification checks directly into your onboarding workflows. With our automated classification tool, most decisions take seconds. Edge cases escalate to human review—fast, defensible, and documented. That’s not just convenient—it’s audit-ready compliance, built-in.
We also make it easier for freelancers to carry episodic insurance through our partnership with 1099Policy. Coverage can be secured per gig, often for less than a cup of coffee. That lowers friction and raises your protection.
The risks are seasonal, but the protections you put in place now will serve you year-round. Whether you're managing 10 contractors or 1,000, classification clarity is no longer optional—it’s operational hygiene.
Take the time. Do the audit. Build the file.
Because once the lawsuit hits your inbox, it’s already too late.
Don't wait for an audit to expose gaps in your compliance strategy. Use this summer as your window to build a stronger, more defensible contractor program.
Use our free Misclassification Risk Calculator to instantly estimate your potential exposure and take the first step toward a safer, smarter contractor program.
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Cristin Monnich is the Senior Director and GM of Global Compliance and AOR at Worksuite. She works with global teams in HR, Legal, Procurement, and Finance to build risk-aware contractor programs that support growth, flexibility, and compliance.
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Cristin Monnich