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Do any of your payments to independent contractors qualify as a “prohibited act?” A bill (H.R. 6111) has been introduced in Congress that would make misclassification of employees as independent contractors (ICs) a “prohibited act” and increase the penalties your company faces for doing so.
If the bill becomes law and IRS discovers you’ve misclassified someone, your company might have to pay damages to the employee (for missed benefits) and fines of up to $10,000.
With an estimated 10 million misclassified ICs out there, it’s not unthinkable that you have one or two on your books, especially if you work in certain industries, like construction, that are known to have chronic problems with classification.
To make sure your company’s not at risk, you might want to review the differences between ICs and employees with hiring managers. Key: Be sure they understand there are real penalties for confusing the two. This isn’t just about Accounting wanting to follow some esoteric procedure.
If your company has a lot of ICs who are former employees, or workers who have temporary or part-time schedules, consider reviewing their files too. Automatically classifying temps and former employees as ICs is a common mistake – if your company has done it, you’ll want to make the corrections sooner rather than later.