The definition of an employee, according the IRS, is someone that you tell what you do, how to do it and monitor their work. If this is how you treat those that you hire, then they may be considered employees, not independent contractors. Independent contractors are actually running their own business and they should be offering their services to various other clients.
In the IRSs eyes, someone that is doing your freelance work for you, for example, and probably your competitions, is an independent contractor.
It is essential that this classification is defined correctly. While you may save money on reporting their income as an employee at first, the costly fines will cause huge problems later including paying back taxes, interest and various penalties. Be sure to define independent contractors and employees correctly. If you are unsure about a specific situation it warrants a call to your tax professional.
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