Need Help with Misclassified Contractors?

Within several branches of government, specifically the U.S Department of Labor, concerns have heightened about employers placing workers as independent contractors instead of employees. This concern is problematic for several reasons. For example, the amount of benefits received as a contractor is not at the same level as employees. Other concerns include; job security, promotion, pay raises, and protection laws such as the civil rights Title VII, the Americans with Disabilities Act, the Family, and Medical Leave Act, and wage and hour laws.

In response to this rising concern, the IRS has proposed incentives for employers to change the status of contractors to employees in their low-cost settlement program. The low-cost settlement program or the Voluntary Classification Program offers the chance for a small payment for previous payroll taxes to employers that change the status of their contractors to employees. Included in this program is avoiding back taxes, penalties, and interest for three years of misclassification and be required to only pay ten percent of taxes for the most recent year. Lastly, another bonus to this program is a more favorable statute of limitations.

The main focus for this program is small businesses, but any employer can apply under these provisions; they have consistently classified the workers as nonemployees in the past, they have filed all required 1099 forms in the previous three years, and are not currently being audited by the IRS, DOL, or a state agency concerning the status of the workers. Any employer interested in this program can apply by filing Form 8592 at least 60 days before the intended switch of classification.

It is important to note that, in addition to the above Internal Revenue Service concerns, the Commonwealth of Virginia has recently passed two pieces of legislation. The first makes it a crime to misclassify employees in order to avoid the payment of withholding taxes. The second permits the Commonwealth to revoke a company’s right to do business in the Commonwealth if it is found to have misclassified its employees as independent contractors.

If any questions or concerns regarding the eligibility of a contractor becoming an employee, please refer feel free to contact the business attorneys at HALE BALL MURPHY, PLC.