Reprinted with permission from South Carolina Lawyer, January 2010

Imagine you are the owner of a small business and you have decided that the most cost efficient way to run your business is to treat your workers as independent contractors, not employees. Because your business will not have to pay payroll taxes or provide employee benefits to these workers, it will save thousands of dollars a year. The decision appears to be a no-brainer. Everything goes great for the first few years until you happen to terminate a contract worker who then files a claim for unemployment benefits. Or a contract worker gets injured on the job and files a claim for workers’ compensation benefits. Suddenly, the classification of your workers as independent contractors is being questioned, and the burden will fall on you to prove that the workers are truly independent contractors and not employees. How will you do this and what are your chances of succeeding? What happens if you fail? What will happen if the IRS gets involved? What should you do if other workers, realizing their status as independent contractors is being questioned, begin demanding benefits and rights that are normally given only to employees? This article will attempt to answer these and other questions while describing the costs businesses face if they are found to have wrongly classified their workers, the different tests used to determine whether workers are employees or independent contractors, IRS enforcement policies regarding worker misclassification, and the current state of the law in South Carolina pertaining to worker classification issues.

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