Author:
Jan Vega
A US-based virtual assistant you control like an employee (set hours, your tools, ongoing full-time work) can legally be your employee, even if the contract says “independent contractor.” Three tests decide it: the IRS common-law test, the Department of Labor’s economic reality test under the FLSA, and your state’s rules, some of which are stricter than both. Offshore VAs working entirely outside the US fall under different rules, but the worker’s own country’s labor laws still apply. The simplest way to avoid the question is hiring through a managed provider like Delegate, which handles the assistant’s pay and benefits so you aren’t running payroll for a worker overseas.
Calling someone a contractor doesn’t make them one. Every test below looks at how the relationship actually works. A contract helps, but if you set the schedule, supply the tools, and direct the work day to day, regulators can treat that person as your employee anyway.
Getting it wrong is expensive. A misclassified worker can mean back payroll taxes, unpaid overtime, benefits you should have provided, and penalties at both the federal and state level. It also tends to surface at a bad moment: during an audit, a dispute with a departing worker, or due diligence before a funding round. It’s one of the more common mistakes businesses make when hiring virtual assistants, mostly because nobody checks until something goes wrong.
1. The IRS common-law test (federal taxes)
The IRS looks at three categories of evidence:
No single factor decides it. The IRS weighs the whole picture.
2. The Department of Labor’s economic reality test (wages and overtime)
Under the Fair Labor Standards Act, the question is whether the worker is economically dependent on you or genuinely in business for themselves.
This rule is changing. DOL issued a six-factor rule in 2024, stopped enforcing it in May 2025, and in February 2026 proposed replacing it with a version of its 2021 test. That version puts the most weight on two core factors:
Status check: as of this writing, the February 2026 proposal had not been confirmed as final. Check DOL’s rulemaking page before relying on either version.
3. State tests (often the strictest)
Several states apply their own rules. California, Illinois, Massachusetts, and New Jersey use versions of the “ABC test,” which presumes a worker is an employee unless the business proves all three:
Part B trips up a lot of VA arrangements. If your assistant handles work that’s central to how your business runs, it can be hard to show it’s outside your usual course of business.
Test |
Who applies it |
What it governs |
Core question |
|---|---|---|---|
Common-law test
|
IRS
|
Federal payroll taxes
|
How much control do you have, financially and behaviorally?
|
Economic reality test
|
Department of Labor
|
Minimum wage, overtime (FLSA)
|
Is the worker economically dependent on you?
|
ABC test (some states)
|
State agencies
|
State wage, tax, and unemployment laws
|
Can you prove all three parts?
|
Picture a founder in California who hires a US-based virtual assistant for 40 hours a week. The founder sets the working hours, trains the assistant on internal SOPs, gives them a company email, and expects them to work only for this business. The contract says “independent contractor.”
On almost every test above, this looks like employment. The founder controls the schedule and the methods, the work is ongoing and central to the business, and the assistant has no other clients or business of their own. Under California’s ABC test, it’s especially hard to defend.
Compare that with a freelancer who takes a fixed-fee project, sets their own hours, uses their own tools, and works for several other clients at the same time. That’s a much stronger contractor case.
Here’s the tension. The things that make a VA effective, like a dedicated person who works only for you and follows your processes, are the same things that push the relationship toward employment. That’s why the hiring structure matters as much as the person.
Most of the tests above are built for workers in the United States. When a VA lives and works entirely outside the US, a few things change:
That last point is the one founders tend to miss. Hiring offshore removes much of the US classification question and replaces it with a foreign one. Paying and managing a worker in another country brings its own compliance steps, and setting fair pay for a Filipino VA is its own decision. For the broader picture, see what hiring a virtual assistant from the Philippines actually involves.
Direct Contractor (1099 or W-8BEN) |
W-2 Employee |
Managed Provider or EOR | |
|---|---|---|---|
Who runs payroll and taxes
|
The worker, or the worker's own country's system
|
You
|
The provider
|
Who provides benefits
|
No one, typically
|
You
|
The provider
|
Classification risk
|
Yours, if the relationship looks like employment
|
Low, since they're classified as employees
|
Largely handled by the provider's structure
|
Your admin load
|
Moderate, rising with offshore complexity
|
Highest
|
Lowest
|
Best for
|
Genuine project-based work
|
Core roles needing full integration and US presence
|
Ongoing support without running payroll yourself
|
A W-2 hire removes the classification question entirely, but it’s the most expensive route. A US in-house hire typically costs 1.25x to 1.4x their base salary once payroll taxes and benefits are counted. Weighing a remote VA against an in-house hire comes down to more than classification, too.
If you go the direct contractor route, hiring a virtual assistant yourself means owning every step, from sourcing and vetting to paperwork. With a managed provider, check what’s actually bundled into the fee. Payroll and benefits handling is one of the components that varies most between providers.
1. Decide how much control you need. If you’ll set hours and dictate methods, plan for an employee-style relationship or a provider that handles employment.
2. Check your state’s test. If you’re in an ABC-test state, the contractor route gets much harder to defend for ongoing work.
3. Match the paperwork to the person. US-based contractor: W-9 and 1099. Foreign contractor working abroad: W-8BEN.
4. Know which country’s laws apply. For an offshore hire, that’s the worker’s country, not yours.
5. Write down the real arrangement. A contract that describes a relationship you don’t actually have won’t protect you.
6. Plan the exit before the start. Know how you’ll revoke access and end the relationship cleanly if it doesn’t work out.
7. Get advice on your specific setup. This article explains the rules. Your own classification depends on facts only an employment attorney or tax professional can assess.
For the full hiring sequence, from defining the role to the first 30 days, see How to Hire a Virtual Assistant in 2026.
It depends on how the relationship works, not what the contract calls it. A VA who sets their own hours, serves other clients, and runs their own business is more likely a contractor. A VA who works set hours for only you, on your systems, under your direction, can be an employee under IRS, DOL, and state tests.
Yes, if the relationship genuinely meets the contractor tests for the IRS, DOL, and your state. For ongoing, full-time, closely directed work, that gets hard to justify, especially in ABC-test states like California.
For a foreign individual performing services entirely outside the US, businesses typically collect Form W-8BEN rather than issuing a 1099. Confirm the details for your situation with a tax professional.
Federal wage and overtime rules generally don’t cover work performed entirely outside the US. The worker’s own country’s labor laws do apply, which is why many businesses hire offshore VAs through a provider that handles local payroll and compliance.
You can owe back payroll taxes, unpaid overtime, benefits, and penalties at the federal and state level. Problems often surface during an audit, a worker dispute, or investor due diligence.
Either hire them as a W-2 employee, or work through a managed provider or employer of record that handles the worker’s pay and benefits. Managed providers also handle vetting and replacement, which a direct contractor arrangement leaves to you.
Most founders don’t want to become experts in worker classification, and they definitely don’t want to learn Philippine labor law. They want reliable help with their inbox, their books, or their guests.
Delegate places dedicated, Philippines-based assistants and handles their pay and benefits, so you aren’t running payroll for a worker overseas. Assistants are vetted through paid work simulations, and you’ll see up to 5 candidates within 7 to 14 days of your kickoff call. Pricing starts at $13 an hour, month to month, with free replacement for as long as you’re a client.
Book a strategy call and we’ll walk you through exactly how the arrangement works before you commit to anything.
