Five years ago, Microsoft settled with a group of workers who sued the software giant claiming they had been improperly classified as independent contractors. The deal cost Microsoft $98 million. These days, as companies of all kinds try to cut costs, the temptation to shift employees to the status of contract workers is enormous. Indeed, even as the economy has shed more than 5 million jobs, the number of independent contractors has actually grown to more than 9 million, suggesting some companies are doing exactly that.
Now the Internal Revenue Service has announced that it intends to crack down on what it calls "misclassified employees" with an audit program of some 6,000 randomly selected businesses that will begin in February. The IRS says that in addition to misclassified employees, it will be looking for other employee compensation violations, such as improper payment of executives' income taxes and unaccounted-for provision of company vehicles to employees or the use of company property by employees.
The IRS calculates that it may be losing as much as $20 billion a year because of misclassification of employees alone. Meanwhile, workers who are improperly classified as independent contractors end up having to pay their full Social Security tax bill, instead of only half, as well as the 2.9% Medicaid tax normally paid by employers. They also lose unemployment insurance coverage.
Continue Reading for Free
Register and gain access to:
- Thought leadership on regulatory changes, economic trends, corporate success stories, and tactical solutions for treasurers, CFOs, risk managers, controllers, and other finance professionals
- Informative weekly newsletter featuring news, analysis, real-world case studies, and other critical content
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the employee benefits and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.