Chatters, employees and contractors: the classification an OFM agency cannot get wrong.

Almost every OFM agency in the United States is built the same way: a founder, a handful of creators, and a chatting team paid on 1099s. It works until one chatter leaves on bad terms, files a wage claim, and a state agency asks how many hours they worked. At that point the contract that says "independent contractor" is worth precisely nothing, because no agency has ever been able to contract out of employment law.

This is the most likely legal problem a US agency will actually face, and it is entirely avoidable.

The label is not the law

Worker classification is decided on the substance of the relationship. Every test in the United States says so explicitly, and courts say it with some impatience. A signed independent contractor agreement is evidence of what the parties intended; it is not evidence of what the relationship was.

What makes it worse in this sector is that three different tests can apply to the same chatter at the same time, for different purposes:

• the FLSA economic reality test, for minimum wage and overtime;
• the IRS common-law test, for payroll tax and withholding;
• a state test, which in a growing number of states is stricter than both.

They can produce different answers. You can be right with the IRS and wrong with the Department of Labor.

The federal wage test, and what is changing

Under the Fair Labor Standards Act, the question is whether the worker is, as a matter of economic reality, in business for themselves or economically dependent on the employer.

On 26 February 2026 the Department of Labor announced a notice of proposed rulemaking, published in the Federal Register the next day (91 FR 9932), that would rescind the 2024 rule and restore a five-factor economic realities test, with greater weight given to two core factors:

1. The nature and degree of control over the work.
2. The worker's opportunity for profit or loss based on initiative or investment.

with the remaining factors — investment, permanence, skill, and how integral the work is to the business — considered alongside them. The comment period closed on 28 April 2026. Until a final rule takes effect, the 2024 rule and the existing case law remain the operative framework, and it is worth remembering that these regulations do not bind courts: a judge applies the statute and the precedents, whichever administration wrote the rule.

Apply the two core factors honestly to a typical chatting operation:

That is not a close call. The honest conclusion for most agencies is that their chatters are employees under federal wage law as currently operated.

The IRS test

The IRS looks at three categories: behavioural control (do you direct how the work is done, train them, set hours), financial control (who supplies the tools, is there unreimbursed investment, can the worker realise a profit or loss, do they offer services to others), and the type of relationship (written agreements, benefits, permanence, whether the work is a key part of the business).

A worker or a business can ask the IRS to decide by filing Form SS-8. Very few agencies want to invite that, but chatters sometimes file it themselves after a dispute — and the agency then finds out about it from a letter.

There is a relief provision, section 530, that can protect an employer that had a reasonable basis for treating workers as contractors, treated all similar workers the same way, and filed all the required 1099s consistently. Note the conditions: consistency and filing. An agency that paid some chatters in cash and others by transfer, and filed nothing, has already lost that argument.

California, and the states that copied it

California applies the ABC test (Labor Code § 2775, from Dynamex and AB5). A worker is presumed an employee unless the hiring entity proves all three:

• A — free from control and direction, in fact and under the contract;
• B — the work is performed outside the usual course of the hiring entity's business;
• C — the worker is customarily engaged in an independently established trade of the same nature.

Prong B decides it. An OFM agency sells creator management, of which chatting is the core deliverable. A chatter therefore performs work inside the usual course of the business, and prong B fails, and the analysis stops. There is no way to draft around it.

Massachusetts and New Jersey apply comparable tests, and other states use their own variants for unemployment insurance. If you have chatters in multiple states, you have multiple tests, and you need to know which one applies where each person actually sits.

What it costs to be wrong

• Unpaid minimum wage and overtime for two years, three if the violation was wilful. Chatters routinely work more than 40 hours a week, and overtime at time and a half on long shifts adds up fast.
• Liquidated damages, typically doubling the back-wage figure.
• The worker's attorney's fees, which is why these claims get taken on contingency.
• Back payroll tax: the employer's share of FICA, unpaid withholding, FUTA, plus penalties and interest.
• State penalties, which in California include civil penalties per violation and personal liability for individuals who cause the violation.

Six misclassified chatters over three years is not a small number. And the trigger is almost never an audit — it is a single unemployment claim filed by someone you let go, which puts a state agency in touch, which produces a determination that then applies to everyone in the same role.

Structuring it properly

There are exactly two defensible designs.

Design one: treat them as employees. Run payroll, withhold, pay the employer share, track hours, pay overtime, and use an employer of record or a payroll provider if you do not want to build the function. It costs roughly 10–15% more than the 1099 rate you were paying, and it removes the single largest liability on the agency's balance sheet. For an agency that ever wants to be sold, this is also the version that survives due diligence.

Design two: make the contractor relationship real. This works only if you actually change the relationship, not the paperwork:

• the chatter runs their own business entity, with other clients;
• they set their own hours within a deliverable, rather than working shifts you roster;
• they are paid per deliverable or per outcome, not per hour;
• they can send a substitute;
• you specify what is to be achieved, not how it is to be done;
• they use their own tools and carry some genuine risk.

Look at that list honestly. If you need chatters online during specific hours, following your tone guide, hitting your response times, you are describing employment. Choose design one and price it in.

Whichever you choose, keep the surrounding paperwork tight: written agreements, an NDA, defined access to accounts with logging, defined handling of fan data, and a clean off-boarding that removes access the same day. Those are also what the agency legality guide treats as evidence of how the business is really run.

Offshore teams

Many agencies engage chatters in the Philippines, Eastern Europe or Latin America. That can be a legitimate arrangement, and it does not by itself make the FLSA problem disappear so much as replace it with three others: the local employment law of the chatter's country, which frequently has its own reclassification doctrine; data protection, because people outside the US are reading messages from subscribers who may be in the EU or the UK; and contract enforceability, because an NDA you cannot enforce is a comfort blanket.

Engage offshore teams through a written services agreement with a real entity, or through an employer of record in that country. Do not engage twenty individuals personally over a messaging app and treat it as a supplier relationship.

In short

Your chatters are probably employees under federal wage law and almost certainly employees in California. The contract label changes nothing. Decide deliberately: either run payroll and price it in, or rebuild the relationship so that independence is real. Do it before someone leaves badly, because the cost of fixing it afterwards is measured in back wages, doubled, plus their lawyer.

This guide is general information, not US legal advice. We work with agencies on contracts, structuring and compliance across jurisdictions, alongside US-qualified employment counsel where the question is one of state or federal labour law.

Your contactOlivier MaciejewskiFounder of OFM Legal · Former international business lawyer (HEC Paris, Arendt, Clifford Chance) · Official MYM partnerHis background Updated August 27, 2026

This article is general information and does not replace advice tailored to your situation. OFM Legal is not a law firm: court proceedings are handled by our partner lawyers.

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