With the gig economy bolstered by the COVID-19 pandemic and wages skyrocketing as businesses compete for qualified employees, many businesses are finding themselves increasingly reliant on independent contractors. While hiring employee contractors offers a variety of benefits—including tax benefits—businesses need to ensure that their “nonemployee” compensation practices are not putting them at risk for IRS penalties.

The employee retention credit was available to qualifying businesses in 2020 and 2021 to help offset the costs of keeping employees on staff during the height of the COVID-19 pandemic. The rules and restrictions governing the employee retention credit changed over time, and, as a result, it is likely that some businesses (if not many businesses) claimed the credit improperly.