New IRS Program Allows Employers to Voluntarily Reclassify Independent Contractors as Employees

Written by Robert G. Brody on October 21, 2011

There is now a program under which employers can reclassify their independent contractors as employees and avoid a majority of the fees and penalties associated with doing so.  Employers now have the chance to voluntarily change their pay practices to comply with the law, and start out with a clean slate. 

The Internal Revenue Service (IRS) recently instituted the Voluntary Classification Settlement Program.  Employers can voluntarily apply to this program in an effort to reclassify their independent contractors as employees.  In order to qualify for reclassification, the worker must have been improperly treated as an independent contractor consistently for the previous three years.  If you are already being audited by the IRS or the Department of Labor, it is too late for you to apply for the program. 

Employers who are accepted into the program will sign a closed settlement agreement with the IRS.  Employers will end up paying about 10% of the amount of back employment taxes it actually owes on the misclassified worker and are not liable for any interest or penalties.  Employers under the program agree to an extended six year statute of limitations for the next three years, instead of the usual three year statute for payroll taxes.  In addition, the IRS agrees not to audit the employer for previous years of misclassification. 

This is a great program for employers who want to voluntarily comply with the law.  Classifying a worker as an independent contractor or an employee is a complicated, fact-specific process.  Click here for further information on proper worker classification. Brody and Associates regularly advises management on complying with state and federal employment laws including wage and hour laws.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.965.0560.

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Related Topics: Legal Updates, News, Wage and Hour

About the Authors

Robert G. Brody is the founding member of Brody and Associates, LLC. He has been quoted and published in national publications and appears as a guest T.V. commentator on contemporary Labor and Employment issues. Learn More