In these days of the gig economy, more business owners are leveraging the affordability and convenience of hiring freelancers (independent contractors) instead of regular employees. It makes sense. There are some tremendous benefits to hiring independent contractors (ICs), including not having to pay for insurance and payroll taxes. Another huge benefit to hiring ICs is that business owners can’t always predict busy times and down times. When seasonal shifts in business necessitate extra help, the business owner can bring on more staff without making any long-term commitments. As business slows down, the owner can simply let the ICs know their help isn’t needed anymore at this time. It seems like a dream come true from an employer standpoint.
However, there are strict IRS rules regarding classification of ICs. If you mistakenly or intentionally classify a worker as an IC when they should be classified as employee, you and/or your business would be held financially liable to the IRS and to the worker. The IRS isn’t setting you up just so they can catch you out. They have established a 20-Factor Test for employers to determine if a worker is classified as an IC or an employee.