IRS Gives Employers a Break on Payroll Taxes
Businesses that have been improperly labeling their employees as independent contractors got a surprise break Wednesday: A new Internal Revenue Service program will allow those businesses to reclassify workers and make only a small payment to cover past payroll taxes.</br></br>The downside for such companies? Regulators say they are going to be more vigilant about misclassification of workers in the future.</br></br>At issue is whether a worker is deemed an employee or an independent contractor. The proper classification depends on factors including how much control or direction an employer wields over workers.</br></br>Employees are entitled to benefits and legal protections, and their wages are subject to payroll taxes. Companies aren't required to withhold income taxes from independent contractors or pay Social Security or Medicare taxes for them. Independent contractors also aren't covered by many labor protections, including minimum-wage and overtime laws, and unemployment or workers' compensation insurance.</br></br>The trouble for businesses, however, is that the distinction between the two categories is vague. The current law is based on a common-law standard involving some 20 factors.