If your company is reclassifying a worker as an employee after receiving a determination letter from IRS, you know you need to pay the employee FICA and federal income withholding taxes.

A new legal memorandum from IRS makes doing that a little easier. You won’t have to pay interest on the previously underpaid amounts.

To download all the details, check out IRS Legal Memorandum 200825043.

Even if the worker prefers to be treated as an IC, that doesn’t mean IRS will agree. And even one misclassification can cost you big in terms of back employment taxes, interest and penalties.

To steer clear of any compliance issues, you’ll want to do two things:

1. Establish that you’re following IRS’ guidelines for who’s an employee, and who’s an IC.  That means reviewing things like how much control the worker has, whether she has a chance to make a profit (or take a loss) and how permanent the business relationship is.
2. Document their IC status. ICs can (and usually do) work for other companies as well. Keep a file of things like marketing materials, business cards, etc. to show that the worker isn’t reliant only on your company for his or her income.