The following excerpt is from our publication Hiring Great Staff:
According to IRS regulations, every person who receives compensation must be classified as an independent contractor or employee.
The classification depends on specific factors outlined by the IRS. For example, the IRS considers workers to be independent contractors if the company does not manage how they work—except to accept or reject their final results.
A word of caution: It is important to classify properly, because independent contractors and employees are treated differently for tax purposes. Your foundation is required to withhold and pay employment taxes on behalf of employees; it is not required to do so for independent contractors. Although consultants are usually independent contractors, simply calling someone a consultant does not make him or her an independent contractor.
You may also find this Human Resources Checklist to be helpful as you prepare for a new staff person to join your team.