That 1099 Contract Could Cost You Your License

Why LSWs accepting independent contractor work are putting themselves and their employers at serious risk.

A note before you read on: This post is guidance from NASW-Illinois, not legal advice. If you believe your current or past employment arrangement may fall into the situations described here, we strongly urge you to contact your professional liability insurance carrier or a licensed Illinois attorney before taking any action.

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It’s showing up everywhere. Job boards, Facebook groups, private practice listings. Employers advertising clinical positions for Licensed Social Workers and listing them as 1099 independent contractor roles.

It sounds appealing. Flexibility. Autonomy. More take-home pay.

It’s also illegal in Illinois. The consequences, for both the LSW who accepts the work and the organization offering it, can be severe.

The Law Is Not Ambiguous

Illinois Administrative Code (68 Ill. Adm. Code § 1470.97) is explicit on this point. A Licensed Social Worker “shall always operate and represent themself as an employee of the independent practice and may not work as an independent contractor as defined by IRS regulations.”

The LCSW (Licensed Clinical Social Worker) is the independent practice credential in Illinois. LSWs must operate at all times under the order, control, and full professional responsibility of a qualified supervisor, a foundational condition of the LSW license.

There is no workaround. Calling it a “consulting agreement” or a “contract for services” doesn’t change what the work actually is. If you’re providing social work services as an LSW in Illinois, you must be a W-2 employee.

What the LSW Is Risking

Your license.

Violating the regulatory requirements of your license is “unprofessional conduct” under Illinois law. The IDFPR can respond to unprofessional conduct with suspension, probation, or revocation. IDFPR’s Statewide Enforcement Section actively investigates complaints against licensees, and sources include other licensees, members of the public, and other government agencies.

A complaint doesn’t have to come from your employer. It can come from a client, a colleague, or anyone who becomes aware of the arrangement.

Your professional liability.

Working as an independent contractor means, by definition, that you’ve removed yourself from the required supervisory relationship. If something goes wrong in your practice, a client is harmed, a clinical decision is questioned, you were operating outside the authorized scope of your license. Malpractice insurance policies are typically written around the conditions of your license. Work that falls outside those conditions may not be covered.

Your taxes.

Accepting 1099 status means you’ve been paying self-employment taxes on income that was legally required to be W-2 employment. If the arrangement is ever audited or challenged, there’s no clean exit from that.

What the Organization Is Risking

Employers who structure these arrangements may think they’re saving money on payroll taxes and benefits. They’re deferring liability.

Regulatory exposure.

The organization is facilitating unlicensed independent practice in violation of the Clinical Social Work and Social Work Practice Act. IDFPR can pursue action against the organization, not just the individual LSW.

Worker misclassification penalties.

Illinois law is clear: employers who fail to pay required workers’ compensation insurance premiums, unemployment insurance contributions, and income tax withholdings are subject to investigation and penalty from the Illinois Workers’ Compensation Commission, the Illinois Department of Employment Security, and the Illinois Department of Revenue.

At the federal level, the numbers compound quickly. For unintentional misclassification, the IRS can assess fines for every unfiled W-2, % of wages paid, % of the FICA taxes the employee didn’t pay, plus the employer’s full matching share, with interest accruing from the original due date. If the IRS determines the misclassification was intentional, criminal penalties including fines per misclassified worker and potential imprisonment become possible.

Increased liability when something goes wrong.

This one often gets overlooked. Organizations misclassify employees as contractors thinking it reduces their exposure. It often does the opposite. Courts look at the actual working relationship: who assigns clients, who sets schedules, who directs the work. If the answer is the organization, a court will likely find an employment relationship regardless of what the contract says. At that point, the organization carries all the liability of an employer, with none of the protections of having done it properly. And the LSW was practicing outside their license conditions the entire time.

What To Do

If you’re an LSW who has been offered a 1099 contract for clinical work in Illinois: don’t sign it. The flexibility isn’t worth the license you’ve worked to earn. If you’re uncertain whether a role is structured appropriately, ask directly whether the position is W-2 employment with LCSW supervision and get that confirmed in writing before you start. If you’re already in this situation, contact your liability insurance carrier or a licensed Illinois attorney right away.

If you’re an employer currently using LSWs as independent contractors: this needs to change. The correction process, reclassifying workers, addressing back taxes, restructuring supervision, is far less painful than an IDFPR investigation or IRS audit. Consult legal counsel on how to unwind the arrangement properly.

If you’re a supervisor or LCSW overseeing LSWs placed in independent contractor arrangements: your license may also be at risk. Supervision relationships carry real accountability. Knowing that your supervisee is practicing outside the law and continuing to sign off on their hours is not a defensible position.

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This post is provided for informational and guidance purposes only and does not constitute legal advice. If you believe this guidance applies to your situation, we urge you to seek legal assistance from your professional liability insurance carrier or a licensed legal representative before taking any action.