The IRS recently announced a voluntary compliance program that will allow companies that have been misclassifying workers as independent contractors — rather than as employees — to come into compliance at a very cheap price. Businesses in South Florida that have been incorrectly classifying workers as independent contractors should consider filing under this voluntary compliance program. But there are other factors — which might raise additional employment law problems — that companies need to consider.

Many companies classify workers as independent contractors, but who might also properly be classified as employees, in order to save federal and state payroll taxes and worker compensation payments — and sometimes to avoid wage hour laws and immigration compliance requirements. This has become a major issue for the IRS and state tax authorities. And many companies all over the country have substantial exposure if subjected to a worker classification audit. An unfavorable audit outcome usually results in substantial exposure for payroll taxes; not only the employer’s share of FICA and Medicare, but also the amount of tax that should have been withheld from the worker (income tax, and the employee’s share of social security and Medicare tax). It is estimated that this amount usually accounts for up to 30 percent of the compensation paid to a worker.

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