How do you hire contractors in Virginia in 2026?
Virginia uses the IRS 20-factor common-law test with no ABC test, but Code of Virginia § 40.1-28.7:7 flips the burden of proof: every worker you pay is presumed an employee, and you prove contractor status, not them.
· Virginia, United States guide
Photo by Nathaniel Villaire on Unsplash · Richmond, Virginia
Virginia does not run an ABC test. You'll read that and feel a moment of relief. Then read Code of Virginia § 40.1-28.7:7: every worker you pay is presumed an employee, and the burden of disproving that falls on you, not the worker.
The Virginia Employment Commission applies the IRS 20-factor common-law test under Revenue Ruling 87-41. The three groupings are behavioural control, financial control, and the type of relationship. A genuine contractor should clear the test. If the arrangement looks like employment, the statutory presumption will surface it.
In the construction industry, Virginia's Department of Professional and Occupational Regulation tiers the civil penalty from $1,000 to $5,000 per misclassified worker. Any misclassified worker in any industry may also bring a private lawsuit for unpaid wages and attorney fees. The federal stack, including IRC Section 3509 and the FLSA, lands on top.
This page covers 1099 vs W-2 in Virginia, the classification test and the presumption, what misclassification costs, how Section 530 applies, contractor onboarding, and Teamed Guard and Protect.
What is the difference between a 1099 contractor and a W-2 employee in Virginia?
A 1099-NEC contractor invoices you, remits their own estimated tax, and pays 15.3% self-employment tax covering both halves of FICA. A W-2 employee gets federal and Virginia income-tax withholding, employer FICA at 7.65%, FUTA, and Virginia unemployment tax to the Virginia Employment Commission.
The IRS decides which one applies, not the contract. Virginia's Employment Commission uses the same IRS 20-factor test for unemployment purposes, so a federal misclassification finding carries the state one with it.
Maria is a software engineer in Arlington. She works across three clients, sets her own hours, and bills by deliverable. She invoices a start-up as a 1099 contractor. The company pays no employer tax, no benefits, and no workers' comp contribution. That is what a genuine contractor arrangement looks like. The risk is that Virginia reads the working arrangement against the 20 factors and the presumption in § 40.1-28.7:7, not the contract title.
Virginia employers pay unemployment contributions to the Virginia Employment Commission on the first $8,000 of each worker's wages. Virginia's minimum wage is $12.77 per hour as of 1st January 2026, CPI-indexed from the prior year's $12.41 (DOLI, 2026). Contractors paid above that threshold may still need employer-level tax treatment if the working arrangement resembles employment on any of the 20 factors.
| 1099-NEC contractor | W-2 employee | |
|---|---|---|
| Tax withholding | None. The contractor remits their own estimated and self-employment tax | You withhold federal and Virginia income tax and employee FICA |
| Employer tax | None. The contractor pays 15.3% self-employment tax (both halves of FICA) | Employer FICA at 7.65%, FUTA, Virginia unemployment tax on an $8,000 wage base |
| Benefits | None. The contractor sources their own | FLSA overtime, workers' comp, any contractual benefits |
| Year-end filing | You file Form 1099-NEC for any contractor paid $2,000 or more (federal threshold, tax year 2026) | You file Form W-2 and quarterly Form 941 |
The classification question reaches you on four tracks: the Virginia Employment Commission for unemployment, the Virginia Department of Taxation for state withholding, the IRS for federal payroll, and the US Department of Labor for FLSA overtime. Run the Contractor Classifier on every engagement before you sign.
Which classification test does Virginia use for contractors?
The IRS 20-factor common-law test under Revenue Ruling 87-41, applied by the Virginia Employment Commission for unemployment purposes. Virginia has no ABC test.
Code of Virginia § 40.1-28.7:7, effective July 1, 2020, adds a statutory presumption of employment that changes the audit posture: you carry the burden of proving the worker is a contractor using IRS guidelines, not them.
The presumption in § 40.1-28.7:7 covers all industries, not just construction. Any worker who performs services for remuneration is presumed an employee unless the engager can rebut that presumption under IRS guidelines. The worker can bring a private cause of action for unpaid wages, employment benefits, and attorney fees. The VEC's 20-factor test for unemployment sits alongside this presumption; both tracks run independently.
Source: Virginia Code § 40.1-28.7:7; Virginia Employment Commission, IRS 20 Factors
The 20 factors group into three categories documented in IRS guidance: behavioural control (who sets the schedule, provides tools, and directs the work), financial control (how the worker is paid and whether they market to others), and the type of relationship (written contracts, benefits, and whether the work is part of the business's regular operations). No single factor is decisive; the picture across all 20 is what determines the outcome.
Virginia's alignment with the IRS test means a federal misclassification finding carries the state VEC finding with it. Unlike a strict ABC state, a genuine contractor who clears the IRS test typically clears the VEC too. The difference is the presumption: in Virginia, you start behind the line and cross it by documenting the substance of the independence.
What does misclassifying a Virginia contractor cost?
Stacked exposure across four tracks. Federal: back FICA, unwithheld income tax, and a 100% wilful penalty under IRC Section 3509 if the misclassification was intentional. Virginia: tiered DPOR fines in construction, plus a private worker lawsuit under § 40.1-28.7:7.
Walk a $70,000-per-year Virginia contractor through a three-year audit and the tracks stack:
| Exposure track | What you owe |
|---|---|
| Federal payroll tax | Back employer and employee FICA, plus the unwithheld federal income tax |
| IRC Section 3509 wilful penalty | 100% of the federal tax due where the misclassification was intentional; 1.5% reduced rate where non-intentional and 1099s were filed |
| FLSA back wages | Unpaid overtime over a two-year lookback (three if wilful), doubled as liquidated damages |
| Virginia DPOR (construction) | $1,000 per misclassified worker first offence; $2,500 second; $5,000 third or later, per the Virginia DPOR |
| Virginia unemployment back contributions | Unpaid VEC unemployment tax on an $8,000 wage base per worker, plus interest |
| Private civil claim (§ 40.1-28.7:7) | Worker sues for unpaid wages, employment benefits including insurance costs, and attorney fees; no statutory cap |
| Public contract debarment | Repeat misclassifiers may be barred from Virginia state contracts |
The audit most often opens when the contractor files for unemployment after the engagement ends and the VEC finds no wage record. Because Virginia uses the IRS test, a federal finding carries the state VEC finding. The § 40.1-28.7:7 private claim runs on a separate civil track and can follow you regardless of whether the VEC or IRS finds a violation.
Do Section 530 and an EOR fix a misclassified Virginia contractor?
Section 530 of the Revenue Act of 1978 can help on the federal track. It is a safe harbour that lets you keep treating a worker as a contractor, with no back federal tax, if you had a reasonable basis, filed 1099s consistently, and treated every worker in that role the same way.
An EOR does not cure prior misclassification. Moving an at-risk contractor onto an employer of record builds an explicit employment arrangement, which the IRS reads as confirmation the worker was always an employee.
Section 530 operates on the federal tax track only. It has no effect on a Virginia VEC unemployment audit, a DPOR construction investigation, or a § 40.1-28.7:7 private civil claim. The three conditions must all be present: a reasonable basis for the contractor call (prior IRS audit, industry practice, or professional advice), consistent treatment of every worker in that role, and timely 1099 filing every year. Miss one and the protection drops entirely.
Virginia's § 40.1-28.7:7 presumption operates on a different legal track from Section 530. Satisfying Section 530 does not satisfy the state presumption, and rebutting the state presumption using IRS guidelines does not satisfy Section 530 on its own. Both require documenting the substance of the contractor relationship.
The EOR point catches employers mid-fix. If you move a contractor who looks like an employee onto an employer of record on 1 June, the prior period of 1099 treatment is not erased. You have confirmed the employment explicitly, and the federal lookback on the earlier period stays open. An EOR is the right answer when the engagement is genuinely employment from day one.
How do you onboard a Virginia contractor properly?
Run the 20-factor test before you sign, collect a Form W-9 before the first payment, draft a contract that documents real independence, pay against invoices through accounts payable, and file Form 1099-NEC by 31 January for any contractor paid $2,000 or more in the calendar year (federal threshold, effective tax year 2026 per the OBBBA).
-
Run the IRS 20-factor test
Weight behavioural control, financial control, and the type of relationship before you sign. The Contractor Classifier walks every factor and keeps a record in your file. Virginia's § 40.1-28.7:7 presumption means you need that record if challenged.
-
Collect Form W-9 first
Get a completed Form W-9 before the first payment. No W-9 means you are required to apply 24% backup withholding from day one.
-
Draft a contractor agreement
The written contract should document: the contractor's right to work for multiple clients, that they supply their own tools, that payment is by deliverable or fixed fee, and that there is no right to employee benefits. This is the evidentiary record that rebuts the § 40.1-28.7:7 presumption.
-
Pay against invoices, through accounts payable
Never run contractor payments through payroll. Pay against dated invoices referencing the agreed project scope, and keep the paper trail. The audit reads your payment practices as much as your contracts.
-
File Form 1099-NEC by 31 January
File Form 1099-NEC for any contractor paid $2,000 or more in the year. The One Big Beautiful Bill Act raised the threshold from $600 for tax year 2026 payments. Missing a 1099 doubles the Section 3509 liability rate if misclassification is later found.
For a genuine Virginia contractor, these five steps cover the onboarding. For a role that fails the 20-factor test, completing them as a 1099 is the beginning of the liability, not the end of it.
How does Teamed handle Virginia contractors with Guard and Protect?
Two products, matched to how much risk you keep. Teamed Guard at $130 per contractor per month layers a quarterly 20-factor review and a $10,000 liability cap over a contractor you continue to engage directly. Teamed Protect from $189 per contractor per month moves the engagement and the full liability to Teamed.
For a common-law state like Virginia, Guard works well behind a genuine contractor with solid documentation. When the role is employment in substance, Teamed's partner-entity network runs it as a W-2 employer of record.
Your calls are handled by an actual person, an in-house legal specialist who knows the IRS 20-factor test, the § 40.1-28.7:7 presumption, and how DPOR tiers its construction penalties. Not a chatbot, not a pooled queue. The Guard review, the Protect engagement, and the W-2 onboarding all run on one platform from your first Virginia contractor to a full W-2 hire.
| Teamed Guard | Teamed Protect | |
|---|---|---|
| Price | $130 / contractor / month | From $189 / contractor / month |
| Who engages the worker | You, directly | Teamed, under our agreement |
| Liability | $10,000 cap per case | Full, Teamed carries it |
| Review | Quarterly 20-factor review against § 40.1-28.7:7 presumption | Continuous, on every amendment |
| Best for Virginia | Genuine contractors with documented independence, needing a backstop on the presumption | Higher-risk roles, or where the presumption is hard to rebut |
When the engagement is employment in substance, Teamed's EOR service runs the W-2 relationship at $599 per employee per month, flat, with Zero FX mark-up and statutory employer costs passed through at cost, itemised on every invoice. There is no setup fee and no exit fee. A Virginia contractor who converts to W-2 stays on the same platform, and when your headcount crosses the crossover threshold, you can graduate from EOR to your own US entity without switching systems. Use the Crossover Calculator to find the month it flips, or read the Graduation Model. EOR is the right model for a first Virginia hire, until it isn't.
Frequently asked questions
Does Virginia use the ABC test for contractors?
No. Virginia does not use an ABC test. The Virginia Employment Commission applies the IRS 20-factor common-law test under Revenue Ruling 87-41 for unemployment insurance purposes. Behavioural control, financial control, and the type of relationship are the three groupings, and no single factor is decisive. Code of Virginia Section 40.1-28.7:7 adds a presumption of employment on top, so the employer carries the burden of proving contractor status rather than the worker.
What is Virginia Code Section 40.1-28.7:7?
Section 40.1-28.7:7, effective July 1, 2020, creates a statutory presumption that any worker performing services for remuneration is an employee. The employer must rebut that presumption using IRS guidelines. It also gives a misclassified worker a private cause of action to recover unpaid wages, employment benefits, and a reasonable attorney fee. The presumption does not replace the IRS common-law test; it changes who carries the burden of proof.
What does contractor misclassification cost in Virginia?
At the federal level: back FICA, unwithheld income tax, and up to a 100% wilful penalty under IRC Section 3509. In construction, Virginia's DPOR tiers the civil penalty at $1,000 for a first offence, $2,500 for a second, and $5,000 for a third or subsequent offence per misclassified worker. Any misclassified worker may also sue directly under Section 40.1-28.7:7 for unpaid wages, benefits, and attorney fees.
Does an EOR fix a misclassified Virginia contractor?
No. Moving an at-risk contractor onto an employer of record creates an explicit employment arrangement, which the IRS reads as confirmation the worker was already an employee. The prior period of 1099 treatment stays open for federal lookback purposes. An EOR is the right structure when the role is genuinely employment from day one, not a retroactive correction.
How much are Teamed Guard and Protect for Virginia?
Teamed Guard is $130 per contractor per month with a $10,000 liability cap and a quarterly 20-factor review. Teamed Protect is from $189 per contractor per month and transfers the engagement and full liability to Teamed. When the role is W-2 employment from day one, Teamed's EOR service is $599 per employee per month, flat, Zero FX.
Virginia is the state that surprises tech employers most. No ABC test sounds contractor-friendly. Then they find Section 40.1-28.7:7: every worker you pay is presumed an employee, and you prove otherwise. The IRS test and the statutory presumption run in parallel. A solid 20-factor file is what keeps both in your favour. Skip the documentation and the presumption is already against you before the audit opens.
Virginia runs no ABC test. Most employers hear that and assume the coast is clear.
Then read Section 40.1-28.7:7: the presumption of employment is a different animal. You prove contractor status; the worker doesn't have to prove anything.
DPOR tiers the construction penalty from $1,000 to $5,000 per worker. Virginia minimum wage hit $12.77 in January 2026, CPI-indexed, not the $15 round number most tech teams plan for.
The documents need to exist before the engagement starts, not after someone files for unemployment.
