Independent Contractor or Employee — IRS Misclassification Initiative

May 03, 2010

The IRS and the U. S. Department of Labor have announced a massive "Misclassification Initiative" to determine if independent contractors are properly classified. The IRS estimates that as many as 80% of workers classified as independent contractors are actually employees.

If a worker is legally determined to be an employee, the employer is required to withhold federal income taxes, FICA, and unemployment taxes. Additionally minimum wage and overtime requirements must be met. If workers are misclassified as independent contractors, the consequences for an employer in back taxes, interest, and penalties can be severe — especially if it is determined that the misclassification was deliberate.

As part of the crackdown, the Department of Labor is hiring 100 new auditors solely to investigate misclassifications. The federal government predicts this new effort on employee misclassifications will reap at least $7 billion in federal revenue over the next ten years.

SESCO Management Consultants provides for expert consulting and auditing to determine not only compliance to IRS-Independent Contractor regulations, but also compliance to all Federal and State employment regulations. SESCO Retainer clients receive these audits at no charge as part of our Service Agreement. SESCO also has prepared a special white paper and compliance guide available at no charge to SESCO Retainer clients. Those who are not retainer clients can engage SESCO on a per diem basis or we encourage you to inquire about our Professional Service Agreement providing for on and off site consulting support at no additional charge. You may contact us by phone at 423-764-4127 or by email at sesco@sescomgt.com .