Feds Recover $35 Billion Tax Loss

News about a pending bill to stop worker misclassification continues to spread across the nation like wild fire. The bill heavily laden with strict employer requirements, added hiring red tape, severe consequences for those who get it wrong and get caught has many very nervous. The bill known as Employee Misclassification Prevention Act of 2008 (H.R. 611) is  the latest attempt by the federal government to stop improper classification of workers as independent contractors and designed to plug the tax revenue drain associated with improper worker classification.

Should the bill pass employers will need to prepare for more than just a larger tax bill. Consequences outlined in the bill range from existing post audit back taxes with heavy penalties and fines, new class action lawsuits, wage and hour violations and a visit from the state auditor to boot! Employers have been sitting on the edge of their chair since the bill was first introduced in May 2008.

The bill includes rules for state auditing agencies by offering a huge incentive for states to step up its efforts to flush out misclassified workers. The incentive comes in the form of a new Department of Labor's (DOL) certification requiring states to prove the effectiveness of its audit programs and promises to be the catalyst the Feds need to drive more aggressive auditing campaigns at the state level.

The take away from all of this folks... the stakes are high and you the employer will not come out on the winning side. With a tax deficit of about $35 billion in uncollected tax revenues and the IRS is convinced a tax drain exists in the misclassification of workers this can only mean one thing. It will be even more difficult for an employer to prove itself innocent of any wrongful doing in any type of an audit.