IES Blog

IRS program lets employers re-classify contract workers

Posted on October 11th, 2011 Read time: 1 minutes

The Internal Revenue Service recently launched a program for employers intended to quell previous worker classification issues involving an employee being mislabeled as a contract worker.

The Voluntary Classification Settlement program offers partial relief from federal employment taxes for eligible employers who agree to re-classify these workers as regular employees for tax purposes.

Employers will be able to regain compliance by making a payment to cover past payroll tax obligations – a small price to pay over being caught during an IRS audit.

In order to obtain eligibility for the program, employers must have consistently treated workers as "nonemployees," filed all required 1099 forms over the past three years and can't currently be under audit by the IRS, Department of Labor or a state agency.

Despite the minimal tax liabilities, Michael Aitken, vice president of government affairs for the Society for Human Resource Management, questions whether the program is for everyone.

"What employers have to consider is that the VCRS program only relieves you from back-tax issues with respect to the IRS and its laws and regulations," he tells Human Resource Executive Online. "It doesn't relieve you from any potential misclassification issues in regard to federal wage and hour laws, state-tax laws and other types of protections an employee might have through an employer's handbook." 

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