Catch Me If You Can

February 23, 2011 | Subscribe to our RSS Feed

I have written about this before, but I just want to send an update on where things may be headed related to the employee vs. independent contractor debate. The following is condensed from an article, from BNA a tax reporting service, that was received recently here at Glass Jacobson world headquarters.  The bold and underlined sections are the emphasis of the preparers of the article.

Government enforcement efforts are placing employers on notice that there has been an increase in the likelihood of getting caught for misclassifying and underreporting workers, a crackdown that could dramatically minimize payroll tax evasions, speakers said Jan. 7 at a panel session of the Labor and Employment Relations Association annual meeting.

James A. Parrott, deputy director and chief economist for the Fiscal Policy Institute in New York,  and other panelists presented evidence that many employers are treating workers as independent contractors—or paying them cash “under the table” and not reporting them at all—when they are in fact employees. Employers do so to circumvent their liability for payroll taxes, Social Security insurance premiums, and workers’ compensation premiums, the panelists said.

Meanwhile, employee misclassification creates problems for workers, panelists said. In addition to not being covered by workers’ compensation, unemployment insurance, or state temporary disability insurance, misclassified and underreported workers lose overtime pay and access to health care coverage and other benefits, such as retirement benefits and paid time off, they said.

Misclassified workers are liable for the full Social Security and Medicare payroll taxes, and if they do not pay payroll taxes, the amount of Social Security benefits for which they are eligible may be reduced.

According to data compiled by the Commerce Department’s Census Bureau, which counts workers paid as independent contractors and who receive an Internal Revenue Service Form 1099, the non-employer series of workers increased by 240,500 from 2000 through 2005, a growth rate of 20 percent, he said.

The growth in the non-employer series has been so much greater than the growth in payroll employment that it “likely reflects an increase in misclassification,” Parrott said.

Check what the Internal Revenue Service has to say on this matter of

employee vs. independent contractor.