The IRS has begun a crackdown on the classification of individuals in the workplace. Specifically, the IRS is beginning to examine whether an individual meets the requirements of an independent contractor or if they are, in fact, actually an employee. The IRS currently estimates that 80% of workers that are classified as “independent contractors” are actually employees, a misclassification that could result in serious tax consequences.
Big name companies have dominated the news lately following such investigations. For example, Fed Ex settled a case for $468 million for misclassifying ground division drivers, and Uber, whose drivers publicly function as independent contractors, may be forced to pay more than $100 million as it currently sits in the crosshairs of the IRS’s sights.
Tax incentives are the primary reason these companies classify individuals as independent contractors rather than employees. With employees, companies are required to withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages that its employees receive. On the other hand, with independent contractors, the individual bears the tax consequences rather than the company. In the end, it comes down to the business relationship that exists between the company and the individual performing the services that determines the proper classification.
For questions on this issue or to examine your current situation, please call the attorneys at Rock Fusco & Connelly.