Watch Out Before Reclassifying Workers

An Internal Revenue Service crackdown on employers who improperly use independent contractors could force many small-business owners to make tough choices: Staff up and raise operating costs, or risk an audit that could have pricey penalties. “Small-business owners have an incentive to keep their headcounts below the level that will trigger a new regulatory burden that’s going to cost them money,” says David Lagasse, a partner at employment-law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C. in New York.

“The IRS says it is rolling out the Voluntary Worker Classification Settlement Program to encourage businesses to correct the error, while not having to worry about a big penalty. Employers who opt into the program will owe 10% of the tax liability that would have been due on the employee’s compensation for the past year, without interest or penalties, according to IRS statements,” wrote Wall Street Journal writers Sarah E. Needleman and Emily Maltby.

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Copyright 2011

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