The Department of Labor and Internal Revenue Service recently announced a joint effort to crack down on businesses that misclassify employees as independent contractors. Historically, these agencies have not shared information or coordinated their enforcement efforts, so this represents a significant change and an increased threat to employers.

The determination of whether a worker is properly classified as an independent contractor involves the consideration of many factors, including the type of work the worker is performing, the amount of control an employer exercises, and the nature of the employer’s business. Even after consideration of the factors, a clear answer may not be apparent. Misclassification of workers as independent contractors can expose an employer to costly litigation, fines, and penalties for violating the Fair Labor Standards Act, state wage and hour laws, workers’ compensation statues, and state and federal tax codes.

For businesses that know they have improperly classified their workers as independent contractors, the IRS has revealed a new program to encourage these businesses to re-classify their workers as employees. These businesses can make a small payment to cover past payroll taxes and in return, reclassify workers without paying interest or penalties. This program is an attempt to cut businesses a break before the IRS becomes more vigilant about penalizing misclassifications. However, it is unclear whether the program provides any protection from liability to the workers themselves.

If you have questions about the proper classification of your workers, or are interested in learning more about the IRS program mentioned above, contact Margaret A. Gisch or Laura A. Balson.