Independent Contractor Issues - Don't Set Yourself Up As A Target

The cold winds of February swept in chilly news for employers. On February 1, 2010, the U.S. Department of Labor ("DOL") released its 2011 fiscal year budget in which it sought $25 million for a "Joint Labor-Treasury Misclassification Initiative" to detect, investigate, and prosecute employers who misclassify their workers as independent contractors ("ICs").¹  Just two weeks later, the Associated Press reported that the Internal Revenue Service ("IRS") and 37 states had also set their sights on companies that improperly classified workers as ICs.² 

On one hand, government scrutiny of potential IC misclassification is nothing new. The IRS collects employment taxes for employees, not ICs. The DOL promulgates the Fair Labor Standards Act's ("FLSA's") overtime requirements for employees, but not ICs.  Since unemployment benefits and anti-discrimination laws provide recourse for employees, but not ICs, state labor agencies regularly deal with this question.  Courts