Before a Contractor Complaint Turns Into an IRS Problem

A contractor complaint can mean two very different fires — a payment dispute, or a misclassification claim that pulls in the IRS or Department of Labor. Attorney Tamsen Horton breaks down how to tell which one you're facing, the DRILL to run the moment it lands, and the fire extinguisher (a real signed contractor agreement) that keeps most of these from ever starting. Show notes: Bringing on a contractor feels like growth — until a message shows up weeks or months later saying they weren't paid, that they think they should've been an employee, or that they're owed something you didn't expect. In this episode, attorney Tamsen Horton walks through exactly what's happening in that moment and what to do next. The Alarm A contractor, freelancer, or subcontractor sends a message, email, or (rarely) a certified letter Common shapes: unpaid invoice, misclassification claim, or a dispute over who owns the deliverables The alarm is loaded the moment someone is brought on without a clear written agreement — it just goes off later The DRILL D — Don't react. No quick payment to make it go away, no defensive reply. Pull the agreement, payment history, and real record first. R — Record everything. Preserve the complaint, gather invoices and scope messages, keep a single organized folder per contractor. I — Identify the real risk. Payment dispute (contract issue) vs. misclassification claim (IRS/DOL exposure) — not the same fire. L — Lead with calm. Don't argue classification status yourself — get attorney or financial help before responding. L — Lock in the lesson. Check whether a signed contractor agreement exists and actually matches how the relationship worked in real life (the plumber test). The Fire Extinguisher A signed independent contractor agreement for everyone brought into the business — scope, payment, IP ownership, and wrap-up terms, built from a trusted template A separate layer for any contractor whose work touches AI tools or your data Clean payment records and a written scope of work, updated and tied back to the original agreement Your Next Right Decision Business moments are predictable. Panic is optional. Run this drill in full inside Business Fire Drills — Drill 03: Before a Contractor Complaint Arrives. → tamsenhorton.com/business-fire-drills