Regulators say that they will be much more vigilant of employee misclassification in the future. Employers who classify workers as independent contractors can have increased costs by around 20-30%, and some say that the confusing rules over what constitutes an employee means that businesses make honest mistakes. The IRS says that it expects most applicants to the program will be smaller businesses. The new Voluntary Classification Settlement Program is part of the IRS larger “Fresh Start” initiative to get more businesses and individual taxpayers into tax compliance.

According to Andrew McIlvaine,

“desperate for revenue, state and federal officials are increasingly looking at the potential mis-classification of employees as independent contractors.”

Click here to read the entire article.

Here is the checklist the IRS Uses to audit for independent contractors:

Behavioral Control/Instructions -

1) Telling how, when, or where to do work.

2) Telling what tools or equipment to use.

3) Telling what assistants to hire to help with the work.

4) Evaluation systems of independent contractors.

5) Telling where to purchase supplies and services.

Training -

1) Requiring training by company and requiring certain procedures and methods to be used on the jobs.

Financial Control -

1) Significant investment on the part of the independent contractor.

2) Not reimbursed for business expenses by employer.

3) Independent contractor must prove profit or loss.

Relationship to the parties -

1) Provide benefits insurance, pension or paid leave.

2) Written contracts for contractors, permanency of the relationship, and services provided as key activity to the business.