Thank you, rich c.
I've pointed this out before and really didn't want to do so again, but you inspired me.
In a non-woodworking business, I had a bunch of ACTUAL independent contractors.
They sold my products, but they paid their own overhead at their own locations. They sold my stuff if, when, how and where they wanted with no rules from me. Straight commission. The very definition of an independent contractor.
Some of them were earning 50K+, so I started bringing them in-house.
Now, they're using my facilities, my phones, my resources and doing things how and when and where I want them to do them, under my direct supervision.
Oops, that's not an independent contractor. So, after a few months, I simply told them all that they were all now employees -- full withholding, the whole bit. No more 1099s. W-2s, just like everyone else.
A couple of years later I (as the corporation) got audited. 5 mill of annual sales. The IRS guy was in my offices for a week. I gave him an office and the run of the place -- ask anyone for any record and they'll give it to you.
He noticed the change in treatment of the sales guys and asked why I did it. After I explained how the sales guys got started and how that evolved to in-house, he said what I did was exactly right and didn't change a penny of the treatment of their income or anything else on the corporate return.
Even though he probably could have said I should have done it slightly sooner than I did. But, he didn't. I think he was shocked that someone did the right thing without even the advice of a CPA, never mind an audit.
The IRS has VERY detailed rules about how to classify employees. Playing stupid games with those rules can be very expensive.
Do you really want to be personally on-the-hook for 7.65% FICA of all amounts paid to fake ICs for the last few years?
That adds up fast. $100K to however many "ICs" for 3 years at 7.65% is $23K. Add the civil fraud penalty of 75%, now it's over 40K. Tack on the usual failure to pay and underpayment penalties and you're approaching 50K of pain for what sounded like a great idea at the time.
And the IRS wants its money now. If you don't pay within 90 days of assessment a lien on all of your assets arises as a matter of law, and they'll file notice of it with your local jurisdiction. Not good if you want to sell, say, a piece of real estate.
Call someone an IC when they're really an employee?
Don't even think about it.