States Helping the IRS Crackdown on Employee Misclassification

A recent CNNMoney.com article provides some additional information on the IRS crackdown on the misclassification of W-2 Employees as Independent Contractors. As we previously reported on this blog, the IRS is trying to raise $7 billion over the next 10 years by going after employers who are misclassifying employees.

Here are a few take-away points from this newest report:

• Over the next three years, the IRS will randomly audit 6,000 companies for misclassification.
• Many states are also stepping up enforcement and sharing information with the IRS, so any audit could set off a “domino effect” of other agencies getting involved.
• New York in particular is targeting misclassification because the problem is creating a shortage in their unemployment fund. In fact, they are borrowing money from the federal government to pay claims!
• A worker is not automatically an Independent Contractor just because they are employed by a separate corporation or legal entity. One company was assessed a $328,000 state fine because they allegedly forced 18 employees to incorporate even though they did not actually operate a business.