Warning for Employers Who Continue to Classify Employees as Independent Contractors

Getting caught classifying your employees as an Independent Contracts can be costly if you''re caught.  It only takes one upset employee to apply for unemployment insurance and be denied before you could be looking at thousands in penalties due to mis-classification and failure to pay employment taxes. 

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The IRS has been tapped on the shoulder and recently reminded by a government report that Employers are still NOT complying with the tax codes.

Employers are still misclassifying millions of workers as independent contractors, instead of employees, according to a recent government report.

The report from the Treasury Inspector General for Tax Administration looked at the issue in the context of the Internal Revenue Service’s Determination of Worker Status Program (also known as the SS-8 Program), which lets employers and workers seek determinations of whether workers are employees or independent contractors. A TIGTA audit found that, out of 5,324 determination rulings from 2009, a fifth (19 percent) of employers appeared not to comply with the determinations, and two thirds (65 percent) did not issue the correct forms to their workers either because the workers no longer worked for them or the compensation was not reported to the IRS. Employers in compliance with the ruling accounted for 17 percent of those studied.

“This problem adversely affects employees because the employer’s share of taxes is not paid and the employee’s share is not withheld,” said Inspector General J. Russell George. “If left unchecked, the problem will continue to deprive the federal government, and the American people, of millions of dollars in lost revenue every year.”

In response to a growing caseload, longer processing times, and lack of compliance with determinations, the SS-8 Program has initiated a set of prescreening techniques aimed at speeding up and improving the process.

As a result of its audit, TIGTA recommended that the IRS’s Small-Business/Self-Employed Division include documentation on the prescreening techniques in the Internal Revenue Manual; update its performance goals for case processing times; evaluated the new prescreening techniques; and assess potential changes to the SS-8 Program to increase employer compliance.

The IRS agreed with all four recommendations. It has developed a measurement for the new prescreening process and plans to monitor over-age cases weekly.