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A report recently issued by the Treasury Inspector General for Tax Administration (“TIGTA”) criticizes the efforts of the IRS to ensure workers are being properly classified as employees. The TIGTA report concludes that millions of workers are being misclassified as independent contractors. TIGTA reached its findings by analyzing the IRS’s “Determination of Worker Status Program” (commonly referred to as the SS-8 program), which allows employers and workers to request a determination from the IRS regarding whether a worker should be classified as an employee or independent contractor.

TIGTA analyzed 5,325 cases involving 5,067 employers during 2009 where a worker was found to be an employee. In its report, TIGTA found that:

• Only 17% of these employers “appeared to comply with the ruling and issued one or more forms W-2 to their workers during tax years 2008 through 2010.”
• 19% of these employers “appeared not to have complied with the determinations and issued a form 1099-MISC instead of a form W-2 to their workers for tax year 2008, 2009, and/or 2010.”
• 65% did not issue a form 1099-MISC or W-2 to their workers. “Either the taxpayers no longer worked for the employers related to the determinations,” the report notes, “or the compensation was not reported to the IRS.”

Employers who retain independent contractors are well served to conduct regular audits to ensure these workers are being properly classified. In light of TIGTA’s findings, employers can expect stepped up efforts by the IRS to more closely scrutinize independent contractor relationships.

The report is available at the following link: TIGTA Report. 

Other recent employment law updates include:

• CEO Held Personally Liable for FLSA Violations
• OSHA Issues New Rule on Reporting Workplace Injuries
• Federal judge dismisses one of many actions brought by the Equal Employment Opportunity Commission (“EEOC”) alleging a disparate impact based on an employer’s use of criminal background checks