It isn't uncommon for some businesses -- particularly small businesses -- to use "independent contractors." The reality is that they may not need full-blown employees, and by using independent contractors employers can cut costs significantly because they do not need to pay certain taxes and benefits. In fact, employers can lower their costs by up to 40 percent by using independent contractors instead of regular employees.
However, employers can run into trouble if they misclassify a worker as an "independent contractor" when they are actually considered "employees" under the law. Indeed, the penalties for misclassifying an employee and not paying payroll taxes can be severe -- not to mention the misclassified employees may be able to seek their rightful benefits under the law.