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It’s tempting to hire a worker as an independent contractor and not as an employee. There are many attractive benefits to such an arrangement, including these:

Taxes. You’re not required to withhold taxes from the amount you pay an independent contractor. Also, you don’t have to pay any portion of the worker’s Social Security and Medicare taxes. Your only responsibility is to complete a Form 1099-MISC if you paid the independent contractor $600 or more during the year. The IRS and the contractor each get a copy.

Workers’ Compensation. Generally, you don’t pay workers’ compensation for an independent contractor.

Unemployment Compensation. Generally, you don’t make contributions to a state unemployment fund, or pay the federal unemployment tax for an independent contractor.

Job Benefits. Independent contractors are paid only for the time they spend working. They receive no pay for sick time or vacation time. And they’re responsible for their own health insurance and retirement savings plan.

Workspace. An independent contractor usually – but not always – pays for his or her workspace and equipment.

Firing the Worker. The emotional and legal bonds with an independent contractor are typically looser than they are with an employee. An independent contractor is usually hired for a set assignment to be completed by a fixed deadline. If you’re not satisfied, you simply turn to another independent contractor for future work. If the independent contractor will be doing a series of projects over a long period, you can have a written contract allowing you or the worker to cancel on short notice. You don’t have to worry about a wrongful discharge claim.

Government Regulations. Your relationship with an independent is subject to fewer legal restrictions than with an employee. For example, you don’t need to pay an independent contractor time-and-a-half for overtime hours, and you’re not responsible for monitoring health and safety conditions at an independent contractor’s own home, shop, or office.

So hiring a worker as an independent contractor is a sweet deal, right? Not so fast. Danger lurks if the worker doesn’t meet the legal definitions for status as an independent contractor.

If you mistakenly treat a worker as an independent contractor instead of as employee, you may have to pay the worker for back overtime. Also, your business may be liable for taxes that you should have paid. In addition, your business may have to pay for workers’ compensation and unemployment benefits for the misclassified worker.

Perhaps the main hazard is that the IRS can impose costly penalties on your business. You’ll be subject to fines, and you’ll have to pay employment taxes, including 100% of the worker’s Social Security and Medicare contributions, as well as income tax that you failed to withhold. You won’t be allowed to collect these amounts from the worker.