The short answer to whether an entity must E-Verify an independent contractor is generally no, but the distinction between worker types is complex and carries significant legal risk. This discussion focuses on the legal requirements for verifying employment authorization, specifically the difference between W-2 employees and 1099 independent contractors. Businesses utilizing a contingent workforce must understand this boundary to avoid penalties.
The Purpose of E-Verify and Form I-9
The requirement for verifying an individual’s eligibility to work in the United States stems from the Immigration Reform and Control Act of 1986. This federal law mandates that all U.S. employers must complete Form I-9, Employment Eligibility Verification, for every new hire. This form confirms both the individual’s identity and their authorization to accept employment in the country.
E-Verify is the internet-based system allowing employers to confirm Form I-9 information against records kept by the Department of Homeland Security (DHS) and the Social Security Administration (SSA). Enrollment in E-Verify is generally voluntary for most private employers, though some states and federal contracts require its use. These verification requirements apply exclusively to legally defined employees, or W-2 workers, hired after November 6, 1986.
E-Verify and the Independent Contractor Exemption
The legal framework for employment authorization verification focuses on the formal employer-employee relationship. Since an independent contractor is not considered an employee under this framework, the hiring entity is generally exempt from Form I-9 and E-Verify requirements for that worker. The law recognizes that an independent contractor operates their own business and is responsible for their own compliance and employment practices.
The relationship is defined as a client-vendor relationship, not an employment one. The legal obligation to verify work authorization rests with the contractor themselves, especially if they hire their own staff. The hiring entity is not required to maintain documentation proving the work eligibility of a 1099 worker.
This exemption relies on the worker being a genuine independent contractor, not an employee mislabeled for convenience. If the relationship structure is challenged, the basis for the verification exemption could be invalidated.
When a Worker Must Be Verified: Misclassification Risk
The primary risk is worker misclassification, where a 1099 contractor is later determined by a regulatory body to be an employee. If the Department of Homeland Security (DHS) finds the worker should have been classified as a W-2 employee, the hiring entity faces penalties for failing to properly complete Form I-9. The federal government, including the Internal Revenue Service (IRS) and DHS, uses common-law rules to determine the true nature of the work relationship.
These common-law rules center on three main categories of evidence: behavioral control, financial control, and the type of relationship.
Behavioral Control
Behavioral control examines whether the business has the right to direct or control how the worker performs the task. Factors include providing detailed instructions, setting the work schedule, or offering extensive training. Significant direction over the means of the work strongly suggests an employment relationship.
Financial Control
Financial control looks at the economic aspects of the relationship, such as who invests in equipment, pays for supplies, and how the worker is compensated. Independent contractors are typically paid a flat fee, can realize a profit or loss, and often use their own tools. Conversely, an employee is usually reimbursed for expenses, paid a regular wage or salary, and uses the company’s infrastructure.
Type of Relationship
This category considers factors like written contracts, the provision of benefits (such as insurance or retirement plans), and the permanency of the work. While a contract stating “independent contractor” is helpful, it is not the sole factor determining classification. If the worker’s services are a core, ongoing function of the business and the relationship is long-term, it leans toward an employer-employee designation. Misclassification exposes the business to dual penalties, covering back taxes and benefits owed to the IRS, and fines for immigration compliance failures with DHS.
Due Diligence and Contracting Best Practices
To mitigate legal risks associated with contingent workers, businesses must establish clear boundaries without infringing on the contractor’s status. A comprehensive, written service agreement is a best practice for any independent contractor engagement. This contract should detail the scope of the project, define payment as a flat fee or milestone-based, and explicitly state that the contractor is responsible for their own equipment, taxes, and insurance.
Employers must avoid any action that could inadvertently create evidence of an employment relationship, especially regarding verification documentation. Requiring a 1099 worker to complete a Form I-9 or performing an E-Verify check, even cautiously, can be used by regulators as evidence that the hiring entity viewed the individual as an employee. This action undermines the defense used in a misclassification audit.
A prudent measure is to obtain a self-certification statement from the independent contractor during the contracting process. This document allows the contractor to affirm that they are legally authorized to work in the United States and are operating as a separate business entity. Such a statement demonstrates that the hiring entity performed reasonable due diligence without overstepping the bounds of the client-vendor relationship.