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A coming crackdown on misclassification of independent contractors?


Reports yesterday suggest that the government officials are starting to aggressively pursue companies that misclassify regular employees as independent contractors, at least in part to garner additional tax revenues.   For example, the federal government’s 2010 budget assumes that the federal crackdown will yield at least $7 billion over 10 years, while more than two dozen states also have stepped up enforcement, including stricter penalties for misclassifying workers.

The article relies on unnamed experts who say that a growing number of companies have cut costs by wrongly classifying regular employees as independent contractors, even though they often are given desks and assignments just like regular employees. Moreover, workers may have become more reluctant to challenge such practices, given the tough job market.

Companies that pass off employees as independent contractors avoid paying Social Security, Medicare and unemployment insurance taxes for those workers. Several studies have indicated that, on average, misclassified independent workers do not report 30 percent of their income.

Among the most often misclassified workers are truck drivers, construction workers, home health aides and high-tech engineers.

The question of whether someone is an employee or an independent contract usually turns on questions of who controls how and where the work is performed, but it is often not easy to make that determination.   The Department of Labor does offer some helpful resources, including this article.

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