Independent Contractor Compliance Blog

WASHINGTON DC-President Obama’s proposed budget for fiscal year 2012 includes a record $240 million for initiatives specifically related to enforcing IC Compliance and misclassification of workers. This proposed funding is consistent with his often stated goals of closing tax gap loopholes and tightening enforcement on the misclassification of independent contractors. Politicians, at all levels of state and federal government, like to refer to tougher enforcement of IC Compliance as “Leveling the Playing Field for employers.”

The administration is pushing for more scrutiny on independent contractor usage and enforcement.

While the President’s budget proposal is only preliminary at this time, the following increases in enforcement are being asked for:

• The Treasury Department (IRS) is asking for an increase in its budget this year. The IRS funding would grow more than 9 percent to $13.3 billion, which includes money for IC Compliance efforts.
• The Department of Labor is also getting extra enforcement money: Labor’s Occupational Health and Safety Administration is asking for an additional $5 million (above current funding) to enforce worker protection laws.
• The Department of Labor’s request specifically provides additional funds to be used to investigate and prosecute worker misclassifications. Last year they asked for, and received, an additional $25 million for this purpose. In this year’s proposal (FY 2012 budget), the Department of Labor has requested almost double that amount to combat worker misclassification.
• The Wage and Hour Division, OSHA, the Office of the Solicitor, and the Employment and Training Administration are requesting an additional $46 million for a “multi-agency initiative” to enforce labor laws.
• There is a proposed increase of $24,711,000 to fund state grants that address worker misclassification within the unemployment insurance program (for agencies such as California’s EDD). This is an extension of the effort that began in the FY 2011 Budget, for grants to:
  • Increase capacity to participate in data sharing activities with the IRS and other Federal and state agencies;
  • Implement targeted audit strategies;
  • Establish a cross-state agency task force to target “egregious employer schemes to avoid taxation through misclassification.”
  • To develop education and outreach programs.

Click here for more detail on the federal agencies budget requests.

“Leveling the Playing Field.”

When releasing the budget proposal, the White House stated, “This initiative will help level the playing field for employers who abide by the law and provide employees with their rightful pay and benefits…”

The Federal Government is serious about IC compliance-you should be too.

The IRS employs accountants, CPAs, IT experts, criminal investigators, attorneys and others to detect misclassifications and to audit employers. The IRS’ stated goal is to “close loopholes and to identify and prosecute violators.” The IRS has an army of full-time experts focused only on one task-compliance. They have partnered with the Department of Labor and most state tax agencies to leverage their power and resources to accomplish this goal.

Our advice to clients: The best time to protect your company is before the IRS, or a state enforcement agency, knocks on your door and asks you to prove you properly classified your consultants.