When a small business is faced with the need to bring in additional human resources, the proprietor has two choices. He can hire employees, or he can contract or outsource the needed services. Hiring an employee allows the manager/owner complete oversight of the employee’s activities. Hiring an independent contractor allows the business the flexibility of contracting the work done on an as-needed basis. Some business owners see independent contracting as an attractive alternative because it absolves them of the responsibility of paying payroll taxes; however, the Internal Revenue Service has clear guidelines of who qualifies as an independent contractor and who must be treated as an employee. Download a brochure on this topic at Independent Contractor or Employee. If an employer/business owner incorrectly classifies an employee as an independent contractor, the owner could be held liable for the unpaid payroll taxes in addition to a penalty.