When is an independent contractor actually an employee?

I have a person I know, we’ll call him Dan. Dan runs a small business that has two or three independent contractors who handle certain aspects of the business. At an inspection, the tax officer asserted that two of his “independent contractors” were actually “employees”. Oh, snap! What went wrong?

Dan had a perfect storm of things happen. First, another employee volunteered that everyone who worked there was actually an employee. Next, the contractors worked on a schedule that Dan created, with tools Dan provided, and neither had any separate income.

Mix all these together, and they add up to fines, penalties and back taxes.

There is a way to do this right. But it takes planning in advance. Do not try to do employment matters without help.

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