Department of Labor Continues To Crack Down On The Misclassification Of Workers While The IRS Creates An Incentive To Help Employers Reclassify Workers
Continuing the Department of Labor's initiatives on the misclassification of
employees as independent contractors, Secretary of Labor Hilda L. Solis signed a
memorandum of understanding with the Internal Revenue Service on September 19,
2011, that enables the U.S. Department of Labor to share information and
coordinate law enforcement with the IRS and various states to "end the practice
of misclassifying employees."
In a separate announcement, as an incentive
to help employers correct any erroneous classifications before being caught, the
IRS has created a program aimed at helping employers reclassify workers with
only nominal penalties. The program requires employers to agree to
prospectively treat the class of workers as employees for future tax periods.
But, in exchange, the IRS will agree to:
- Require the employer to only pay 10%
of the employment tax liability that may have been due to the workers for the
most recent tax year;
- Exempt the employer from liability
for any interest and penalties on the liability;
- Forgo an employment tax audit for
the worker classification of the workers for prior years; and
- Extend the limitations period on assessment of employment taxes for three years for the first, second, and third calendar years after the date the taxpayer agreed to begin treating the workers as employees.