If you run a small crew in Arizona and pay some of them on a 1099, there's an order from the governor's office you should know about.
The Arizona Registrar of Contractors posted a notice on Oct. 13 about Executive Order 2026-01, which the order calls "Protecting Paychecks for Hard-Working Arizonans." The order itself isn't new. Gov. Katie Hobbs signed it on May 20, 2026. But the Registrar's post is a good reminder that it's on the books, and that the agency that holds your license is part of it.
You can read the full order on the governor's website.
What the order does
At its heart, the order is about worker misclassification: treating people who work as employees as if they were independent contractors. In plain terms, it's the line between a W-2 and a 1099.
The order directs four state agencies to share information so they can enforce worker classification rules. They are the Department of Economic Security, the Department of Revenue, the Industrial Commission and the Registrar of Contractors.
That's the part that should get a contractor's attention. Those agencies handle unemployment insurance, taxes, workers' compensation and contractor licensing. Under the order, what one agency finds about how you classify your workers is meant to be shared with the others. So a problem that starts as an unemployment or workers' comp question can reach the agency that holds your license.
Why the state says it's doing this
The order cites estimates that about 13% of Arizona construction workers, more than 30,000 people, are misclassified. It says that costs the state $5 million to $10 million a year.
For honest contractors, misclassification is also a competition problem. A company that calls its whole crew independent contractors can skip payroll taxes, workers' comp premiums and unemployment insurance. That lets it bid lower than the builder who does things by the book. Every small contractor who has lost a job to a number that didn't make sense knows the feeling.
The advisory council and the report
The order also told the Registrar to convene an Industry Advisory Council on Paycheck Protection. The council was to meet at least three times before the agencies reported back.
The agencies were to deliver recommendations on Oct. 1, 2026, "or shortly thereafter." Separately, the Arizona Department of Administration was told to review clauses in state contracts, including payroll certification, and to report by the same date.
As of this writing, there's no public status on the Oct. 1 report. We couldn't find a published report or a roster of the advisory council. When either one turns up, we'll tell you what's in it. Recommendations could lead to new rules, so it's worth watching.
What to check now
None of this changes the law on who counts as an employee. But it does mean the agencies looking at your business are talking to each other. A few things are worth a look.
Go through your crew list. For each person you pay on a 1099, ask whether they really run their own business. Do they set their own hours, bring their own tools, carry their own insurance and work for other customers? Or do they show up when you say, work how you tell them and work only for you?
Look at your subs, too. If you hire other contractors, make sure they're licensed and carry their own coverage. Keep copies on file.
Check your workers' comp and unemployment insurance setup. Those are the areas where classification questions tend to come up first.
If you do state work, watch for changes to payroll certification clauses in state contracts.
And if you're unsure, ask an accountant or employment attorney who knows Arizona construction. Fixing a classification problem on your own terms is a lot easier than fixing it after an agency calls.
Bottom line
The order's main job is to connect the dots between agencies that used to work separately. For a small builder, the risk is simple. A classification problem won't stay in one office anymore.
Why it matters for Contractors
Under EO 2026-01, misclassification findings from Arizona's employment, tax and workers' comp agencies are meant to be shared with the Registrar of Contractors. That puts a contractor's license closer to any 1099 problem. Small builders who use independent contractors should review how they classify their crews now, before the Oct. 1 recommendations become public and possibly turn into new rules.
Photo: Arizona Capitol Museum 2014 by Gage Skidmore, CC BY 2.0, via Wikimedia Commons
