IRS eases pain of employee reclassification.

Crain's Cleveland Business, April, 1996 by Grassi, Carl

For several years, the IRS has aggressively audited many small businesses to determine whether workers classified as independent contractors should be reclassified as employees. The cost of such a reclassification can be financially crippling to a small business owner. Generally, if a business is found to have misclassified workers as independent contractors, it will be retroactively liable for wage withholding, Social Security and unemployment taxes.

Also, tax penalties and interest will usually be assessed. The issue of whether a worker should be classified as an employee or an independent contractor has been a difficult one for many businesses and the IRS. The outcome generally depends on whether the business can control the manner and detail by which the...

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