Interesting. I guess the rules depend on the state. None of the articles mentioned a license in Kansas.

I imagine they do. It was required in Washington State, and as far as I know, not required in New Jersey.

I was thinking more on the lines of how the state was going to determine the wage for figuring the unemployment ins. and the ex-employees unemployment.

In Washington, the "dancers" are not employees (receiving a W-2), and are not even self-employed contractors (receiving a 1099). So if they cannot work anymore, they are not entitled to unemployment insurance, since they were never employed in the first place. Similarly for workman's compensation for on the job illnesses or accidents.

If both the employer and employee would then have to ammend the Fed tax returns? Would the employer have to pay their portion of the FICA/Medicare and could the employee get the amount they paid back?

In Washington, the employer would not have to amend anything, since they do not file anything. The people are not employees. They are just there, and have to pay for the privilege. Since the dancers get income (tips) from what they do, they do have to pay income tax on it. I do not know if it is "other income" on the 1040, or self-employment tax (schedule C?).

It is tough out there.