Thus, it's important to know the rules and related risks. If a hiring firm controls the means by which work is done, the worker is automatically an employee. If the hiring firm can exercise control only as to the results of the work, the worker is usually an independent contractor. Those twenty factors will be discussed later in this Special Report. First, it's necessary to point out the reasons why it is important to distinguish between the two, and the potential disasters that await your business if the worker is classified improperly.
Many businesses try to avoid classifying workers as employees for a variety of reasons.
They realize that employees require extra bookkeeping and paperwork, payroll tax obligations, and tax withholding obligations. Thus, it is simpler to call someone an independent contractor, and make direct payments to him. However, it doesn't matter what you call someone, it's what they are under all the facts and circumstances that counts. Government entities, interested third parties, and perhaps the worker himself will often later challenge the classification as independent contractor for a variety of reasons. The IRS, the state employment tax department, and other taxing authorities can make claims for unpaid payroll taxes, penalties, and interest.