Feds launch initiative to ID misclassified ‘contractors’

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in Compensation and Benefits,Human Resources,Small Business Tax,Small Business Tax Deduction Strategies

The U. S. Department of Labor (DOL), in conjunction with the IRS, has announced a “misclassification initiative” aimed at employers that misclassify employees as independent contractors.

A 2009 Government Accountability Office report labeled misclassification a “significant problem” with “adverse consequences” for the government. The report estimated misclassification would cost the federal government $7 billion in lost payroll taxes over the next 10 years.

The DOL’s 2011 budget allocates $25 million for the initiative. Approximately 100 investigators will be assigned to the project.

For its part, the IRS will perform random audits of employers to determine whether they are properly classifying their employees.

Note: When the feds look at employment relationships, they first examine how independent the contractor really is. If a worker turns out to be an employee and not a contractor, employers can count on hefty fines and penalties.

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