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Case Study:Assume you are the owner of a small boutique hotel. You want to hire a worker to plan, design,develop, build, install, and maintain a state-of-the-art information technology (IT) system whichwill be the center piece of all IT operations. You decide to hire the worker as an independentcontractor and not as an employee.

You pay the worker a monthly salary and provide her with a credit card so that she can buy parts,equipment, and necessary tools. Assume that three years after you hire the worker, you learn thatshe/he has not paid any income taxes since the inception of employment. You receive a noticefrom the IRS that it will be conducting an investigation and putting you on notice that you may beresponsible for unpaid taxes of over $50,000.00. To make matters worse, the worker has suddenlydisappeared and has left you without anyone with the necessary knowledge, skills, and abilities tomanage your IT system. You hear from one of your employees that the worker was threatening togo to the IRS and complain that you worked her over 50 hours per week without paying anyovertime. It is true that the worker was on property more than 40 hours per workweek, but youdidn’t keep track of her exact hours. You’re not sure that you’ve complied with the law and youfear that you may be in trouble.

First, what are the most important facts in the case study and why? Then, what other facts, if true,would help your case? Be specific. Tell me all the things you should have done to protect yourself.Then, tell me what other facts, if true, would hurt your case. What are some common mistakesemployers make when they hire independent contractors?

What is the worst thing that can happen if the IRS decides you misclassified the worker? If youdid misclassify the worker, who, other than the IRS, will be interested in your mistake? What otherpenalties might you face?