Employers should look closely at worker classification – before auditors do


The IRS has been conducting audits as part of a government crackdown on employers who misclassify workers as independent contractors to avoid paying payroll taxes and other employment-related expenses, as recently reported in the Wall Street Journal article "Payroll Audits Put Small Employers on Edge."

The article points out that the legal distinction between full-time staff and independent contractors can be confusing for many employers, and it cites state studies showing that local businesses misclassify from 10 percent to more than 60 percent of their workers as independent contractors.

"In the past three years, the IRS, working with the Labor Department and officials in more than a dozen states, set a goal of investigating 6,000 employers," according to the Wall Street Journal. "Since September 2011, the government has collected $9.5 million in back wages for more than 11,400 workers who were misclassified as independent contractors."

Referring to an IRS "amnesty program designed to encourage employers to voluntarily reclassify contractors as employees by waiving some penalties," the article goes on to say, "Under the program, employers pay as little as 1 percent of the wages paid to their reclassified workers the previous year, rather than the full amount they owe in back taxes."

The article said that so far "1,000 employers have signed on since the program was launched in 2011."

CPAmerica International's Washington Tax Update e-newsletter reported the details of the IRS amnesty program, known formally as the Voluntary Compliance Settlement Program, on Jan. 16, 2013. Employers seeking to take advantage of the more generous settlement options must take action to apply to join the program by June 30, 2013.