Think you can classify some of your employees as "independent contractors?" Think carefully before you do - especially if your company is based in Massachusetts.

More and more, companies are turning to independent contractors – or 1099 workers as they are known by the IRS – to boost their workforce during busy times, to fill gaps in their employee line-up, or to tap into the particular skill sets of outside consultants. According to the U.S. Department of Labor’s Bureau of Labor Statistics, about 10.3 million people (or 7.4% of the workforce) identify themselves as independent contractors. Many expect the number will continue to grow in the coming decades.

Some employers are unaware of their misclassifications, blithely assuming that it is perfectly fine to assign contractor status to their workers – particularly if the workers themselves agree to the classification. Other employers might be intentionally misclassifying workers in an effort to save money on tax payments and employee benefits.

No matter the intent, companies that misclassify 1099 workers can face stiff penalties. At the very least, they will be liable for back taxes. Steep fines are common. And, if taken to court for the infractions, they might even lose their businesses.

Consider the key differences. From a tax payment perspective, employers typically withhold federal income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment taxes on their employees’ wages. None of this happens with an independent contractor - they handle these tax payments themselves. From a human resources perspective, 1099 workers are typically not eligible for the same benefits as a regular employee, such as health insurance or paid time off.

These distinctions are fine and can be mutually beneficial for both the employer and the 1099 worker – providing the independent contractor is, indeed, independent. Problems arise, however, when employers treat their 1099 workers just like regular employees, yet fail to offer them the same benefits, or pay the required taxes. Take the private security contractor Blackwater, for example. They have been in the news recently, accused of misclassifying workers as independent contractors to avoid paying $50 million in federal taxes.

Companies often find themselves in hot water when 1099 contractors realize that they are doing the same job, in the same office, under the same set of job-related guidelines as the colleagues sitting around them, yet are ineligible for participation in company benefits.

The rules for independent contractor classification vary from state to state. And Massachusetts is one of the toughest when it comes to 1099 classification. The state’s independent contractor law established a three-part test, all three of which must be met to classify a worker as something other than an employee. The burden of proof is on the employer to show that the worker meets the definition of an independent contractor.

This summer, a new law took effect requiring state employers to pay triple damages to plaintiffs who successfully sue their employers for wage and hour claims – including independent contractor violations. By misclassifying workers as 1099s, employers may find themselves at an even greater risk of lawsuits – and the mandatory triple damage payments.

Meanwhile, the state has increased its enforcement of the law in an effort to recoup the estimated tens of millions in lost state tax revenues from all those misclassified 1099s. The Joint Enforcement Task Force on the Underground Economy and Employee Misclassification was created in March to investigate and bring into compliance companies that violate state labor, employment and tax laws.

So how do you determine independent contractor status? Read on for the 20-factor test.