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Employee or Contractor? Here's a Cheat Sheet on Classification. (Infographic) If you inadvertently classify an employee as a contractor in the hopes of saving money, you may be putting your business in serious danger.

By Catherine Clifford

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

Calling an employee a contractor feels like an innocent enough move, especially when your business is running on thin margins and doing so could save you bundles in taxes. But a misclassification of an employee as a contractor can cost you in the long run.

It's easy to see the incentive: Employers have to pay taxes, government benefits, corporate benefits and potentially overtime pay for employees, but they are not responsible for these costs for contract, or freelance, workers.

Related: What Young People Want From Work

But if an employer has been incorrectly classifying employees as contractors -- and therefore skipping out on requisite taxes -- and the truth comes back to roost, the impending tax bill can be backbreaking. That's why its important to know the difference, legally, between an employee and a contractor.

The infographic, embedded below, created by payroll software company ZenPayroll, provides a flowchart to walk you through determining whether you need to be classifying a worker as an employee or a contractor.

Employee or Contractor? Here's a Cheat Sheet on Classification. (Infographic)

Related: Welcome to the Nimble Workplace of the Future, One Fostering Constant Change
Catherine Clifford

Senior Entrepreneurship Writer at CNBC

Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at Entrepreneur.com, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. You can follow her on Twitter at @CatClifford.

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