You can call them independent contractors and pay them as such, but they may actually be employees.

This matter is especially timely now as many retirement plans (and health insurance plans) have January 1st employee enrollments. It’s critical that workers be treated correctly for tax compliance purposes.

If someone is an employee, then the employer must withhold income tax, withhold and pay Social Security and Medicare taxes, and pay unemployment tax. In addition, he or she may be eligible and have to be included in benefit plans. However, the employer generally does not have any of these obligations for an independent contractor.

Penalties and interest can pile up if someone is incorrectly treated as an independent contractor. And in the case of a retirement plan, the employer would have to make up the benefits the individual would have received as an employee. And it can be expensive as Microsoft found out.

Whether an individual is an independent contractor or an employee is a factual matter based on the extent of behavioral control, financial control, and relationship of the parties. The IRS publication, Independent Contractor or Employee, provides an explanation.

If in doubt, any doubt, seek guidance from your CPA or attorney. This is one of those "kids, don’t try this at home" situations.