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IRS To Audit 6000 Employers On Independent Contractors

The Internal Revenue Service has recently announced that it will be conducting random audits of approximately 6,000 U.S. employers for employment tax compliance and proper classification of independent contractors.  The audits will be conducted over the next three years, and will include employers of all sizes and types, including non-profit organizations.

The audits are intended to serve two purposes:  (a) generate revenue from non-compliant employers  and (b) serve as a statistical sample of employers that are in compliance while identifying areas of non-compliance and techniques used to avoid employment taxes.  The audits will focus on worker classification, fringe benefits, non-filers, officer’s compensation, and employee expense reimbursement.

Oftentimes, employers are tempted to classify workers as independent contractors, rather than employees, in order to save costs on employee benefits and employment taxes.  Employers should be aware, however, that incorrectly classifying employees as an independent contractor can lead to hefty penalties and fines.  In addition, employers can also be liable for other claims, such as medical bills, workers compensation benefits, and unpaid overtime, should they arise.

Employers are advised to check whether their workers are properly classified as employees or independent contractors.  You can view the federal guidelines on independent contractors here and the State of Hawaii guidelines here.  You should also contact an experienced labor and employment attorney if you need assistance interpreting these guidelines.