Internal Revenue Service (IRS) (Photo credit: cliff1066™)
The IRS, U.S. Department of Labor and state governments have a big stake in correctly classifying
workers. Improper treatment of workers as independent contractors costs the government
tax revenue, in the form of lost withholding, unemployment, workers’ compensation,
and Social Security and Medicare taxes.
This opportunity for reclaiming revenue has led to renewed compliance efforts.
How big is the problem? Even with the interest in proper classification, it is not clear how
many workers are misclassified. According to U.S. Bureau of Labor Statistics, contractors
made up 7.4% of all workers in 2005 equating to 10.3 million workers. With the
recent economic stress on small businesses, chances are that the use of contractors has increased
significantly since 2005.