IRS Offers Help for Companies with Employee Misclassification Issues
By Thomas W. Hartmann
The Hartmann Law Firm LLC
[email protected]; 908 769 6888
In other newsletters, I discussed the pitfalls associated with misclassifying an employee as an independent contractor – even though a business leader might initially think that the independent contractor designation will save money.
While the IRS and Department of Labor have been solidifying their joint efforts to enforce rules regarding employee classification, recently, the IRS has instituted a Voluntary Classification Settlement Program (VCSP) to provide a form of amnesty to business owners on these issues. This program can be of immense benefit to employers who face potential employee classification issues.
The VCSP permits eligible businesses to reclassify independent contractors as employees and pay only 10% of the employment tax liability that may have been due on compensation paid to the involved workers for the most recent tax year. In addition, reporting employers will not be liable for any interest or penalties and will not be subject to an employment tax audit with respect to the classification of the workers in prior years.
To be eligible, the employer must: (1) have consistently treated the workers in question as independent contractors; (2) have filed all required Forms 1099 for the workers in the previous three years; and (3) not currently be under IRS audit.
Once an employer reclassifies an employee under the VCSP, all individuals in the same class must be treated as employees for tax purposes. This program requires an employer to file an IRS Form 8952 at least 60 days before the date the employer intends to reclassify the employee.
This program can be of great compliance and economic benefit to any company that, whatever the reason, believes is has misclassified employees as independent contractors