Independent Contractor Compliance Blog - by Collabrus™

If you are looking for them; you will find an assortment of warning signals on the horizon, forecasting a much tougher stance on IC Compliance by both state and federal enforcement agencies-The Perfect IC Compliance Storm. Here are a few key indicators:

In the past year there have been numerous articles, quoting both lawmakers and bureaucrats as being concerned about payroll tax funds running out of money. These include Social Security, Medicare and Unemployment Insurance. As a result, unusual pressure is being exerted against the IRS and state employment tax agencies to become more aggressive in identifying and collecting unpaid payroll taxes. This not only means insuring all monies are collected, but it also insuring all workers are classified as an employee whenever it is legally possible.

In California

California’s EDD, the agency responsible to audit and collect payroll taxes in California is hiring at this very moment. You can look it up on their website.

One factor contributing to stronger enforcement efforts is California lawmakers fear that the UI Fund is going bankrupt. They are looking at raising the UI tax rate and possibly the taxable limits on UI, to collect more money. This topic is one of the agenda items for a commission created by Governor Schwarzenegger that is charged to study the California tax code and recommend changes in the revenue collection system.

California has one of the most aggressive labor law task forces in the nation: According to their own website, the California’s Economic and Enforcement Employment Coalition (EEEC) is a partnership of state and federal agencies, “conducting vigorous and targeted enforcement against labor law violators.”

At the national level the GAO found federal payroll taxes not being collected

According to a GAO report, as of last September 30, 1.6 million businesses owe the IRS in excess of $58 billion in payroll taxes, interest, and penalties. Past studies of the IRS by the GAO have shown that self-employment income is the largest share of delinquent taxpayer liabilities the agency has failed to collect. This will put pressure on the IRS to increase efforts in this area.

In a possible indicator of more aggressive collections, the Internal Revenue Service will not renew its contracts with two private debt collection agencies. IRS Commissioner Doug Shulman said, “…I have decided not to renew the contracts…I believe this work is best done by IRS employees, and I believe we have strong support from the Administration and the Congress for increased IRS enforcement resources going forward.” Shulman also noted that the IRS anticipates hiring over 1,000 new collection personnel in the 2009 FY.

Other IRS actions that show a more aggressive stance:

• In a recent bulletin the IRS stated: “Workers who believe they have been improperly classified as independent contractors by an employer can use Form 8919, Uncollected Social Security and Medicare Tax on Wages to figure and report the employee’s share of uncollected Social Security and Medicare taxes due on their compensation”

• The IRS is hiring more auditors and investigators. They have received $630 million in 2009 above their current funding level, specifically to target noncompliance through improvements in collection efforts, technology and additional tax audits.

It’s not just the IRS

The U.S. Department of Labor: The Secretary of Labor, Hilda Solis, has announced that the Department of Labor’s Wage and Hour Division is hiring 250 new field investigators to increase the agency’s enforcement of Labor Laws.

The Department of Homeland Security: The DHS has issued new work-site enforcement guidelines targeting employers, not the illegal aliens working for them. This is a major, 180 degree, change in enforcement of Immigrations and Customs Enforcement (ICE) policy. The new policies will target the companies hiring the illegal workers-not the workers themselves.

A recently released DHS Fact Sheet said, “Effective immediately, ICE will focus its resources in the work-site enforcement program on the criminal prosecution of employers who knowingly hire illegal workers in order to target the root cause of illegal immigration.”

All this points to more risk if you gamble with improperly classifying your workers as IC’s.

If you use IC’s to do business you need to be sure you are doing it right. There is a Perfect IC Compliance Storm on the horizon. Don’t gamble with it. Betting you can ride it out and that the government won’t select your company for enforcement is a formula for a costly calamity.

Seek out an expert to prepare your company now for the coming storm, before the government knocks on your door.

To learn how to ensure your company will be protected please join us Thursday June 4^th from 8-10AM at the Computer History Museum in Mountain View. RSVP today, while seats still remain!