If it walks like a duck, quacks like a duck, and looks like a duck, then it’s a duck even if you call it a cow. The same is true with independent contractors. If it walks like an employee, quacks like an employee, and looks like an employee, then it’s an employee even if you call it an independent contractor. So make sure your independent contractors are really independent contractors or structure the relationship in a way that fits an independent contractor.

If you misclassify someone as an independent contractor, then the IRS penalty is 1.5% of wages paid, 20% of the social security and medicare withheld, and you have to pay the company’s share of social security and medicare taxes and benefits that you would have paid the employee anyways if they were originally classified as an employee. The penalty can be higher if there’s willful misconduct or a failure to file 1099s. Typically the IRS just requires the employer to prospectively treat the person as an employee.