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IRS Targets 'Independent Contractor' Category

Audits seeking pay violations at 6,000 randomly selected companies to begin in February

By Dave Lindorff | Updated on November 03, 2009

Five years ago, Microsoft settled with a group of workers who sued the software giant claiming they had been improperly classified as independent contractors. The deal cost Microsoft $98 million. These days, as companies of all kinds try to cut costs, the temptation to shift employees to the status of contract workers is enormous. Indeed, even as the economy has shed more than 5 million jobs, the number of independent contractors has actually grown to more than 9 million, suggesting some companies are doing exactly that.

Now the Internal Revenue Service has announced that it intends to crack down on what it calls “misclassified employees” with an audit program of some 6,000 randomly selected businesses that will begin in February. The IRS says that in addition to misclassified employees, it will be looking for other employee compensation violations, such as improper payment of executives’ income taxes and unaccounted-for provision of company vehicles to employees or the use of company property by employees.

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