Misclassification of employees is a hot enforcement topic for the IRS. Determining whether a worker should be classified as an independent contractor or an employee is not always clear. The IRS has 20 factors that they consider when determining whether one is an employee or an independent contractor. The factors focus on the ability of the employer to control the worker. Furthermore, some employees treat persons who clearly should be employees as independent contractors in order to shift the burden of paying employment taxes to the individuals.
The Internal Revenue Service has recently announced that it will grant partial amnesty to employers who have classified workers as independent contractors when they are really employees (available at http://www.irs.gov/newsroom/article/0,,id=246203,00.html). The amnesty would be limited in scope.
Under this limited amnesty, employers who reclassify independent contractors as employees will pay only a portion of the employment taxes they would otherwise have paid for the year. Additionally, the IRS will waive any interest and penalties. The IRS has also stated that it will not audit participating employers for past years.
Despite this apparent show of good will, it is important to note that the IRS has stated that is may share the information with state and other federal agencies. As a result, it is important that those who may take up the IRS’s amnesty offer consult with an attorney so that they understand their rights, obligations, and potential liabilities.
