Worker Classification Settlement Program

On September 21st the IRS and DOL announced a major initiative to "end the business practice of misclassifying employees." The agencies signed new information-sharing agreements with several states that make it easier for both the states and the federal government to go after companies that misclassify workers.

The IRS estimates that up to 80% of independent contractors are incorrectly classified. They predict that this new follow-the-money crackdown will reap at least $7 billion in new federal revenue over the next 10 years. Currently 11 states have signed the agreement with the IRS. Those states are Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah and Washington. Will more states follow? It's likely that the answer will be yes.

In addition to the "stick" of enforcement, the IRS is offering a "carrot." IRS announced that it is willing to waive fines and interest penalties for employers that reclassify as employees any workers who they currently misclassify as independent contractors. This partial amnesty deal is part of the new VCSP - IRS Voluntary Classification Settlement Program.

Per the IRS: "The new Voluntary Classification Settlement Program (VCSP) is designed to increase tax compliance and reduce burden for employers by providing greater certainty for employers, workers and the government. Under the program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees."

For more information visit: http://www.irs.gov/newsroom/article/0,,id=246203,00.html