Those vendors that A/P has been paying — are they actually employees? The feds have been threatening it for awhile, and now here it is: The first bill aimed at making it harder for your company to justify classifying any workers as independent contractors (ICs).

Of course, if they aren’t ICs, they’re employees — in either event, it means Payroll and A/P need to be in constant commuication about who handles payments, tax reporting, etc.

Among other changes, the bill (H.R. 5804) would shift the burden of proof so that companies like yours would have to proveworkers were actually ICs — that’s a change from the current system where IRS has to prove that they aren’t ICs.

Worse, to prove your case, you’d have fewer “reasonable causes” to rely on. Under this bill, your company would have to show it relied on a prior judicial ruling, technical advice from IRS, prior audit findings or similar information. Classifying a worker as an IC because it’s standard practice in your field would no longer cut it.

In addition, the bill would increase the penalties for misclassifications.

Do you have experience with misclassified workers (or suspect you have some on the books that haven’t been uncovered yet)? Tell us about it in the comments

Tags: 1099s, Employee classification, Independent contractors, IRS regs, Proposed legislation, W-2s