December 14, 2022

IRS and DOL Focus (Again) on Worker Misclassification

The Internal Revenue Service and the U.S. Department of Labor (DOL) have signed a new Memorandum of Understanding (MOU) to “promote employer compliance with obligations to properly pay employees and to pay employment taxes. This multi-agency approach presents a united compliance front to employers and their representatives.”

Targeting employers’ misclassification of workers as independent contractors instead of employees is not a new effort. The two agencies signed a similar agreement in 2011. This new MOU replaces the 2011 agreement. The DOL signed a similar MOU with the NLRB in December 2021 that included “identification and investigation of complex or fissured employment structures, including single or joint employer, alter ego, and business models designed to evade legal accountability, such as the misclassification of employees…”.

Who? If your business has an annual dollar volume of sales of more than $500,000 and you have one or more workers that you have classified as an independent contractor, you might be on the watch list.  Consider this.

Ask Yourself.

  1. Have you “…treated some workers in a class of workers as employees and others in that same class as independent contractors”? If so, you would be a “Prime” or “Tier 1” lead for the IRS.
  2. Have you, “treated all workers in the same class as independent contractors and issued Form 1099s?” If so, you would be a Tier 2 lead for the IRS.

Talk to your tax and payroll administrators, as well as employment counsel, to ensure you have properly classified your workers, in accordance with federal as well as state rules.