Employers reluctant to utilize IRS program to rectify misclassified workers.

During last week’s EmployerLINC webinar on wage and hour laws, McAfee & Taft employment attorney Charlie Plumb stated that one of the major initiatives for both the U.S. Department of Labor and the Internal Revenue Service centered around the misclassification of workers as independent contractors. Last fall, the IRS launched a program, the Voluntary Classification Settlement Program (VCSP) that was designed to “increase tax compliance and reduce burden for employers by providing greater certainty for employers, workers and the government.” McAfee & Taft tax attorney Keith Peters discussed the new program in this September 26, 2011, EmployerLINC Employment Law Update.

In a post yesterday, law blogger and employment lawyer Molly DiBianca discussed why some employers have been hesitant to utilize this IRS program:

Despite the many benefits offered by the VCSP, many employers were reluctant to participate because it was unclear whether the facts surrounding the employer’s participation would be shared with other government agencies. Of particular concern is the Department of Labor’s Wage and Hour Division, which is responsible for enforcing the Fair Labor Standards Act. Employers’ concerns were legitimized by the earlier announcement that the IRS, the Department of Labor, and several states would be joining forces to identify wage and hour violations and impose significant fines on non-compliant employers.

DiBianca said that the IRS has issued an FAQ sheet to try to address employer concerns about VCSP:

The FAQ resolved three key fears for employers:

  • The IRS states that it will not share information about VCSP applicants with the Department of Labor or state agencies;
  • An employer that applies for but is not accepted into the VCSP will not automatically be subject to an IRS audit; and
  • Participation in the VCSP is not an admission of liability or wrongdoing with respect to employee classification issues.

You can read her entire post here as well as reference some previous posts on her blog that discuss more about the issue of misclassification of workers.