Independent contractors can provide valuable assistance to businesses. However, there can be IRS penalties if a business is wrong when classifying someone as an independent contractor rather than as an employee. It is helpful to seek the advice of an attorney regarding the facts of your specific situation, but here are some factors and rules of thumb to keep in mind.
An independent contractor will not be entitled to benefits that an employee has, and employers are not required to withhold social security and other items from their compensation. For this reason, the IRS can issue penalties to an employer that improperly classifies someone as an independent contractor.
