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.

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By Catherine Clifford

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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