Payroll Audits Put Small Employers on Edge —Wall Street Journal

Tax Crackdown Comes as Use of Contract Workers Grows; Companies Find Rules Unclear

Angus Loten and Emily Maltby at the Wall Street Journal report that some studies have shown that local businesses misclassify anywhere from 10% to more than 60% of their workers as independent contractors, and regulators are beginning to crack down in pursuit of more revenue.  An excerpt: 

 Internal Revenue Service auditors showed up with little warning at Brian Robinson’s staffing firm in Atlanta a year ago, seeking to verify that a dozen outside contractors he had hired to handle his information-technology services weren’t, in fact, full-time staffers.

The audit was part of a government crackdown on employers who misclassify workers as independent contractors to avoid paying payroll taxes, and other employment-related expenses.

Mr. Robinson says the auditors ultimately found that his 30-year-old family business, TRC Staffing Services Inc., with its 100 permanent employees and up to 20 temporary workers, was in the clear. But he says the audit was “nerve wracking” because tax law doesn’t make it easy to distinguish between full-time staff and independent contractors doing full-time work. He says the legal distinction can be confusing even for an employer with his decades of experience in the labor market.

Read the whole piece here.

The appeal of using outside workers is growing, the authors write, as many small businesses struggle to stay lean. Some employers also are turning to contractors to avoid hitting the 50-employee threshold that would require them to pay for employees’ health insurance, starting next year, under the federal health-care law, or pay a penalty.

Increased Payroll Audits Focus on The Legal Distinction Between Full-Time Staff and Independent Contractors