Businesses of all sizes have turned to hiring freelancers, also known as independent contractors, for a wide variety of tasks from graphic design to content creation to event management. Freelancers are a great way to get work accomplished without having to hire and pay for a full-time employee, generally making an independent contractor a cheaper way to go. In fact, according to a recent study, nearly 1 in 3 Americans complete freelance work, making this sector a huge part of the economy. 

However, as great as hiring a freelancer can be, it's important to make sure your company handles the paperwork and tax implications of freelance work correctly. Improper labels and mistakes on both the part of the freelancer and the company hiring a freelancer can lead to audits and potentially even penalties by the IRS. Heed these important tips to ensure your company properly classifies the person as a W-2 employee or an independent contractor: