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.
