by Katie Birthler
With the memorandum of understanding signed by DOL, IRS and 11 states (Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah, and Washington) both the US DOL and the IRS, together with the State Wage and Hour Divisions, will coordinate efforts to identify and prosecute companies in violation.
Under the new agreements, a state will now share information with the DOL that a business failed to remit unemployment insurance or workers’ compensation premiums, which might lead the DOL to audit the employer for possible federal wage-hour violations. The IRS, then, would also receive information about the violation which would give the IRS the opportunity to seek unpaid taxes and associated penalties. Thus, an employer risks being hit three times, instead of just once, for the same, possibly unintentional violation.
At the same time, the IRS recently announced its new "Voluntary Classification Settlement Program" (VCSP), to give employers an opportunity to voluntarily reclassify workers as employees for federal employment tax purposes. Under this new program, instead of paying back taxes, penalties and interest for three years of misclassification, businesses will be able to pay a designated amount for the most recent of three years. The VSCP program will also relieve employers from paying interest or penalties on those workers whom they are reclassifying.
Employers must meet certain eligibility requirements to participate in the program.
The rigorous scrutiny of the classification “independent contractor” will put significant pressure on all companies – small, medium and large. Organizations must be prepared to prove to DOL, the IRS and their state DOL agency, that worker classification is correct under the IRS Independent Contractor criteria and the Fair Labor Standards Act (FLSA). Legal counsel guidance is recommended to insure the company is protected against potential legal liability.
If your company needs assistance on resources for appropriate classification of workers, please contact Katie Birthler at Optimum HR Systems for more information.
