Independent Contractor Classification Review: Avoid DOL/IRS/TWC Trouble

Posted by: Adair M. Buckner

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The fight continues between employers and the U.S. Department of Labor (DOL), the Internal Revenue Service (IRS), and state employment agencies over who can truly be classified as independent contractors. Misclassification can be tragic for employers. Don't let your business be one of the targets.

If you currently classify any workers for your business as "independent contractors", you better do a close review of the recent DOL interpretive guidelines. They make it even harder to meet the definition of "independent contractor". Businesses that continue to randomly label workers as independent contractors do so in great risk of substantial penalties, possible overtime and fines. DOL has made it clear that it considers "Most workers are employees."

The DOL and the IRS have begun a huge "Misclassification Initiative", going after employers with more audits and closer scrutiny. The IRS estimates that 80% of workers classified as "independent contractors" are actually employees. DOL has publicized that it has hired 100 new auditors just to investigate misclassifications of independent contractors. Texas Workforce Commission also has investigators who are closely looking at this issue. An audit by any one of these agencies is a most unpleasant experience for an employer and a proactive review of your classification will save a lot of heartache and money.

To review the key factors the DOL has set out to meet independent contractor requirements see my earlier blog: DOL TIGHTENS DEFINITION OF INDEPENDENT CONTRACTOR AGAIN

Many employers believe calling a worker an independent contractor rather than an employee can save them a lot of money on taxes, benefits and overtime. However, wrongfully calling an employee an independent contractor will cost you far more in the long run. It is critical that you get the classifications right.

If you need guidance in reviewing worker status as independent contractor or employee for your business, contact Adair Buckner directly at or 806-220-0150.

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