With the recent audits of nail salons all over the country, all businesses must revisit relationships with their workers and make the critical determination as to whether each individual worker is an employee or an independent contractor.

According to the IRS, "Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed."

The key is to examine your entire relationship with your worker and ask how much control you have over the worker. Do you control what the worker does and how the worker does his or her job? Do you control the financial aspects of the worker's job? How do you pay your worker, do you reimburse his or her expenses, do you provide the tools and supplies? And do you provide employee-type benefits such as insurance, vacation pay, sick leave and other benefits?

In contrast, an independent contractor is someone who sets his or her own hours, works independently, incurs his or her own expenses to perform the job, and generally is given authority to complete the task without your control or input.

Businesses must treat their employees according to tax, labor, worker's compensation, unemployment, and health care laws but have much less obligation to the independent contractor.

Executing a contract with each of your worker is an important exercise in the mutual understanding of your relationship. Engaging in negotiation, drafting, and signing a contract provides a solid foundation for your relationship and eliminates potential misunderstandings of each party's obligation to one another. Having a contract will give you the confidence to file the appropriate documentation with the relevant state and federal authorities and the confidence to overcome a tax or labor audit.