Friday, September 30, 2011

Is the new Voluntary Settlement program for independent contractors a good idea?

Is the new Voluntary Settlement program for independent contractors a good idea?

An article at Forbes says no:

Where Section 530 of the Revenue Act of 1978 applies, reclassification of a worker from independent contractor to employee for tax purposes can only have prospective effect. There is no legal basis for assessing employment tax, penalties, or interest with respect to such worker for a prior period.
Why, then, would an employer voluntarily agree to pay any employment tax with respect to a worker classified as an independent contractor for a prior period for which the worker was classified as an independent contractor? Why, too, would the employer voluntarily agree to extend the assessment period for employment taxes with respect to such worker for each of the next three years?

Click here for the article: Employers Beware of IRS' Illusory Worker Classification Program

Moreover, such a reclassification could lead to negative actions from other government agencies, since the amnesty only applies to the IRS. Employees could also use entry into the program as evidence of wrongdoing by the employer and thus sue for benefits that weren't provided.

However, there are risks in not entering into the program:

Yet given the fact that the Labor Department has teamed up with the IRS and a growing number of states in a renewed effort to penalize businesses for wage theft, employers should weigh their options carefully. According to the Associated Press, the IRS collected $4 million in back wages on behalf of about 6,500 employees who were misclassified in 2010. With 300 new investigators in the agency this year – all of whom will focus exclusively on probing wage theft complaints – we will likely see a significant increase in those numbers, along with the fees and penalties that accompany them.

Click here for the article: Experts Weigh in on the IRS’s New Voluntary Classification Settlement Program

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