Missouri employers have to classify workers as employees or independent contractors. An employer may need to pay workers’ compensation, unemployment insurance and federal taxes for an employee. However, many employers misclassify workers as independent contractors simply to avoid these duties. The misclassification of employees is not only a problem for workers, but also increases the workers’ compensation and unemployment costs for employers who correctly characterize workers as employees.
The U.S. Department of Labor estimates that 30 percent of employers misclassify workers. In 2010, the Missouri Department of Labor discovered thousands of workers who were misclassified.
What Is the Difference Between an Employee and an Independent Contractor?
In very simplistic terms, an employee works for a company or another individual subject to substantial control. On the other hand, an independent contractor uses his or her own methods to complete work and might only agree to perform a specific piece of work for a fixed price.
Voluntary Worker Classification Program
The U.S. Internal Revenue Service (IRS) recently launched the Voluntary Worker Classification Settlement Program in an effort to reduce the number of misclassified employees. The program offers employers the opportunity to ensure that they are properly classifying their employees and paying the proper payroll taxes. The program also relieves employers of most of the payroll tax obligations that they should have paid in the past. Employers who participate in the program will pay approximately one percent of the wages they paid to misclassified employees to satisfy past payroll tax obligations.
Once an employer is in the program, the IRS will not assess penalties or interest on the payroll taxes that the employer should have paid, nor will the IRS audit the employer. In exchange the employer must agree to classify the workers as employees in the future and extend the statute of limitations for employment tax assessments. Private businesses, tax-exempt organizations and government entities are all eligible for participation in the program.
The IRS and the State of Missouri continue to investigate employers to make sure that they do not intentionally misclassify employees in order to avoid tax liabilities and other obligations. For questions regarding the correct classification of a worker consult an experienced employment attorney.