The amalgamation of the Internet of Things (IoT) and federated learning (FL) is leading the next generation of data usage due to the possibility of deep learning with data privacy preservation. The FL architecture currently assumes labeled data samples from a client for supervised classification, which is unrealistic. Most research works in the literature focus on local training, update receiving, and global model updates. However, by principle, the labeling must be performed on the client side because the data samples cannot leave the source under the FL principle. In the literature, a few works have proposed methods for unlabeled data for FL using “class-prior probabilities” or “pseudo-labeling”. However, these methods make either unrealistic or uncommon assumptions, such as knowing class-prior probabilities are impractical or unavailable for each classification task and even more challenging in the IoT ecosystem. Considering these limitations, we explored the possibility of performing federated learning with unlabeled data by providing a clustering-based method of labeling the sample before training or federation. The proposed work will be suitable for every type of classification task. We performed different experiments on the client by varying the labeled data ratio, the number of clusters, and the client participation ratio. We achieved accuracy rates of 87% and 90% by using 0.01 and 0.03 of the truth labels, respectively.