Is the worker an independent contractor or an employee? That question interests the Internal Revenue Service, the Department of Labor (DOL), the Equal Employment Opportunity Commission, the Social Security Administration, state labor and unemployment compensation departments, and numerous others including plaintiff’s lawyers. Costly consequences may exist for misclassification, including tax, ERISA, wage and hour, and unemployment compensation liabilities, just to name a few.

Therefore, employers need to get the answer right. Never has that been more important than now, with the IRS announcing that, over the next three years, it will randomly audit 6,000 large companies on this issue, the DOL educating workers with its We Can Help campaign and increasing its investigative force by approximately 33 percent, and large multi- million dollar pro-employee verdicts. As labor and employment disputes remain America’s top litigation concern, the independent contractor question deserves a company’s full attention.

With employees, employers must withhold income taxes, withhold and pay Social Security and Medicare taxes, pay unemployment taxes, and provide company- sponsored benefits consistent with ERISA and company plans. But, none of this must be done for true independent contractors. Therefore, it is easy to fathom why companies would have a financial interest in using independent contractors, especially in these difficult economic times.