Employee vs. Independent Contractor
If an employee is classified as an independent contractor and the employer does not have a reasonable basis for doing so, the employer may be held liable for employment taxes for that worker (Internal Revenue Code section 3509). In addition, if the IRS suspects intentional misconduct in employee classifications, additional fines can be imposed, including criminal penalties.
If a department has a doubt about the appropriate worker classification, an interactive worksheet is available to complete in order to get a ruling from the Accounting Office.