Your business is growing. People are showing up, delivering results and helping you to move forward.

But if you’re not clear on how each working relationship is structured, you could be exposing your business to serious risk. Even when everything feels like it’s working just fine.

Here are 3 common setups that seem efficient but may leave you vulnerable.

1. Your regular worker who isn’t officially hired

They show up every week. You rely on them. They’re consistent and trustworthy. But they’re not on your payroll. Maybe they invoice you or maybe you pay them cash.

The risk: If they’re working regular hours under your direction, they may be considered an employee by the IRS or the Department of Labor. Even if you both agreed otherwise. That could trigger penalties, back taxes and wage claims.

The fix: Review how the work is actually structured. If you control their schedule and work methods, they likely need to be classified as a W-2 employee, not a contractor. A basic offer letter and proper payroll setup can protect you.

2. Your long-term “contractor” who works like a full-time team member

They invoice you through an LLC or as a sole proprietor. But they follow your schedule, use your tools and have no real independence. They’re basically part of your staff, just without the benefits.

The risk: Misclassifying employees as independent contractors is a major red flag for the IRS. If they audit and decide that the person should have been on your payroll, you may be liable for unpaid taxes, overtime and penalties.

The fix: Use the IRS control test: Who sets the schedule? Who decides how the work is done? If the answer is you, reclassify the role and bring them on as an employee. Better to fix it now than deal with fines later.

3. Your casual, flexible worker with no written agreement

They fill in when needed, jump on projects here and there, and understand that it’s all “as needed” but nothing’s in writing. Not pay rates, not expectations, not even how to end the relationship if needed.

The risk: Without any documentation, there’s no clarity, which means no protection. If expectations change or issues come up, it’s your word against theirs.

The fix: Even for part-time, short-term or flexible help, use a short written agreement. Outline pay, responsibilities, hours and how either side can step away. It doesn’t have to be legalese, just clear, consistent and signed.

How to protect your business

Timeframe of work assignment. How long do you anticipate this work assignment to last? If the body of work is ongoing and the assignment duration is “indefinite” with no known target end date, then that may also be a sign that a regular on-the-payroll part or full-time employee needs to be considered.

Don’t rely on verbal agreements. If someone works for you regularly, put something in writing. It shows that you’re serious and protects both sides.

Match the paperwork to the relationship. Employees should be on your payroll with an offer letter. Contractors should control their own schedule and work methods. If they don’t, you probably need to reclassify.

Review as you grow. Many small businesses start informally. But once someone’s been working with you for a while, it’s worth checking whether your setup still makes sense or if it needs tightening up.

Implement policies and procedures. Some companies even have Contingent Labor policies and associated procedures to address these sort of questions and issues.

Need help with reviewing your current setup?

We help business owners to figure out whether their working relationships are structured correctly and put simple documentation in place.

That way, you’re protected before any issues arise.

Reach out for a confidential review of your current people set up.