Greater Lansing Business Monthly (Michigan) (02/02/12) Dennis Theis

Worker misclassification can result in substantial exposure to tax liabilities. The U.S. Internal Revenue Service recently announced the Voluntary Classification Settlement Program for companies that have misclassified their employees as independent contractors or other nonemployees. This may be a good time for companies to analyze how they have classified their employees and write a check to the IRS if necessary to put to rest previous classification problems.

Behavioral control, financial control, and the relationship of employer and worker are typically the primary factors to weigh, although no one factor will determine the classification. Criteria that may indicate the individual is an employee include providing instructions on where, when, and how to do the work; mandating or providing specific tools, equipment, or assistants to be used; and providing training about how the work is to be performed. Criteria that may indicate the individual is an independent contractor include substantial financial investment in the work performed; opportunity for profit or loss on the work; and significant unreimbursed expenses.