Ultimately, 46% of Independent Contractors reviewed by the IRS are determined to be misclassified and one in three companies fail a worker classification audit. The IRS claims to lose nearly $350 billion a year in unpaid taxes, with $39 billion attributed to underpayments or non-payments by independent workers.
Needless to say, the IRS is keen to clamp down on this loss of revenue – last year they hired 4,500 new agents to undertake audits. If your company is found to be in breach of the rules, penalties include back taxes, PLUS interest AND a fine of up to 35% of the total. These penalties can easily stretch into millions of dollars. Defending these cases can take years and absorb thousands of dollars as well as many man hours.
If you’re unsure whether your contractors would be better off classified as W2 employees, take the 20 Factor Test here. The test will help you see if the contractors you work with meet the criteria needed for classification as independent contractors or whether they would be more appropriately classified as W2 employees. In essence though, the more control you have over where, when and how the temporary worker performs their work, the more likely you are to be classified as their employer in the eyes of the IRS.
If you find that your contractors do not meet the 20 Factor Test criteria, call us on 855 250 5000 or email@example.com for a free, confidential consultation on how to compliantly engage contingent workers.
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