Can a daycare pay teachers or subs as 1099 contractors?

The federal test is the U.S. Department of Labor’s “economic reality” test, and it is in transition.

On February 27, 2026 the DOL published a proposed rule that would rescind its 2024 independent-contractor rule and return to a 2021-style economic reality test built on two core factors: control, and opportunity for profit or loss.

The comment period closed April 28, 2026, and our check on October 5, 2026 found no final rule — until one lands, the 2024 rule (29 CFR part 795) technically remains in the Code of Federal Regulations.

Enforcement is not waiting for the final rule.

DOL states it is no longer applying the 2024 rule in its investigations, per Field Assistance Bulletin 2025-1 — so the 2024 rule’s own text is not the standard its investigators apply today.

The two core factors below come from the 2021-style test the proposed rule would restore: control, and opportunity for profit or loss.

Mapped onto a classroom, the factors read plainly. Control: who sets the hours, assigns the room, decides the routines, supplies the curriculum and materials, and supervises the person while they work.

A center directing all of that is exercising exactly the control the test asks about. Opportunity for profit or loss: whether the worker runs an operation of their own — advertising, setting terms, carrying costs, serving several clients, able to lose money on a slow month.

A teacher paid for time on your schedule, with no separate operation of their own, shows none of that pattern.

Run the factors over the people in your building and the answer is hard to escape: lead teachers, assistants and substitutes who work in your classrooms, on your schedule, are very unlikely to be independent contractors under any version of the DOL’s test, because the center controls the work. That is our reading of the federal factors, not a DOL ruling.

State tests can be stricter than the federal one — ABC tests are the kind to watch for — so your state labor agency can reach a different answer than the DOL would.

The paperwork does not settle it. The test is called an economic reality test because it examines how the work actually happens.

A signed contractor agreement, a 1099 at tax time and an invoice where a timesheet used to be do not change who controls the classroom.

Before you treat any regular worker as a contractor, put the arrangement in front of employment counsel.

Substitutes are the case where a 1099 can look tempting, because the work looks contingent: per-day pay, an irregular schedule, no benefits attached.

None of that is one of the factors.

The question is still control.

A substitute who accepts an assignment at your center, works in your classroom, follows your plans and your lead teacher’s direction, and fills a gap in your roster is working under your direction — the pattern the federal analysis reads as employment.

On that analysis, substitutes on a center’s schedule are very unlikely to be independent contractors.

Specials teachers — the music instructor, the yoga class, the soccer enrichment program — are the closer cases, because the arrangement can look like a business: an instructor who sets the program, brings their own equipment and sells the class to more than one center is operating like a vendor, not filling a shift.

The factors pull apart like this:

• Facts that point to a business: the instructor sets the program, brings their own equipment, offers the class to other centers and facilities, invoices for it, carries their own costs, and can serve other clients or decline your date.
• Facts that point to employment: the center picks the times, folds the class into the day, directs how it is run, supervises the person alongside your staff, and pays them like a shift.

A single arrangement can carry facts from both columns, which is why the honest answer for a weekly enrichment instructor is fact-specific rather than one-size.

Under the 2021-style test the DOL proposes to restore, control and opportunity for profit or loss are the core factors — not the invoice, and not the label on the agreement.

If a specials teacher is a recurring part of your week, have employment counsel look at the arrangement before the next invoice is paid.

When what you actually need is coverage, build the list before the vacancy: a planned bench of on-call substitutes beats improvising with a 1099 label.

The practical side — recruiting, vetting and scheduling a substitute pool — is the guide to building a substitute pool.

A home setting can look like a loophole.

The questions to ask are the same two core factors — who controls the work, and whether the worker can profit or lose on it — but the research behind this page holds no analysis specific to family child care homes, so treat a home arrangement as fact-specific.

An assistant who comes to your home on the schedule you set, cares for the children you enroll, follows your routines and house rules, and works with your space and equipment is working under your direction.

There is no separate business on the assistant’s side of it — no other clients, no costs of their own, no way to profit or lose on the arrangement.

Those are facts that point toward employment rather than a business; how a given arrangement comes out is a question for employment counsel or your state labor agency, and state tests can be stricter than the federal one.

Informal does not mean exempt. Help that is paid casually, scheduled week to week, or framed as “a hand” rather than a role is still work the provider directs.

If the arrangement has the shape of employment, the label it travels under will not decide the question.

Confirm any home assistant arrangement with employment counsel or your state labor agency before treating the person as a contractor — and for the operational side of the hire, screening through onboarding, see the guide to hiring a home daycare assistant.

The savings a 1099 arrangement appears to offer are payroll costs.

An employee’s wages carry the employer’s share of Social Security tax — 6.2% each for employer and employee in 2026 on wages up to $184,500 — and Medicare at 1.45% each with no wage cap, under IRS Publication 15.

Federal unemployment tax adds 6.0% on the first $7,000 of each employee’s wages in 2026; an employer that gets the full 5.4% state credit pays a net 0.6%.

A worker treated as a contractor receives none of those from the center.

Federal tax treatment of a worker is a separate question our research did not cover, so put it to a tax adviser.

When a wage-law test finds an employee, the arrangement unwinds into the obligations that attach to employees under the wage rules.

What that means for hours the person has already worked is exactly the question to put to employment counsel or the DOL’s Wage and Hour Division.

DOL is engaged on classification: it says its investigators are no longer applying the 2024 rule, and the 2026 rulemaking shows the agency revisiting the test itself.

State tests can be stricter — ABC tests are the kind to watch for — so an arrangement that survives the federal analysis can still fail a state’s.

Structure the flexibility you need inside employment instead: part-time roles, a scheduled floater, an on-call substitute on your payroll for the days they work, or coverage booked through a staffing agency.

Whatever route you take, the decision to pay someone as a contractor deserves the same care as any other compliance decision.

Confirm before you file anyone as a contractor. The U.S. Department of Labor administers the federal wage-law test, your state labor agency may apply its own version, and tax treatment is a question for a tax adviser.

Before you pay any teacher, assistant or sub as a 1099 contractor, confirm the arrangement with employment counsel or the DOL’s Wage and Hour Division — and once the person is on payroll, the overtime, break-pay and training-time rules in our wage-rules guide are the ones that apply to them.

This page is employer information, not licensing or legal advice. Under wage law, worker classification turns on the U.S. Department of Labor’s test and on your state’s own test, and tax treatment is a separate question — confirm your own arrangements with employment counsel, your state labor agency or a tax adviser before filing anyone as a contractor.