Wednesday, September 28, 2011


Contractor or employee

Feds want to know


According to a Wall Street Journal article titled Price Of Reclassifying Workers, the federal government is going after employers - typically small businesses - that have questionable contract employee practices. (Read the full article at

The problem is: When is a contractor a staffer?

This is a problem an alert risk management practitioner should identify and bring to the client's attention.

As with most things "risk management," the practitioner can only lead the horse to water (make the client aware of a risk), the practitioner can't make the horse drink (make the client avoid or mitigate the risk).

The IRS, which is running the investigation, announced a program to allow small businesses to "reclassify" personnel the IRS might determine to be employees (vs. contractors) with only "limited' penalties.

There are pluses and minuses to "converting" a person's status from "contractor" to "employee. Some of the negatives come into play when an organization's head count reaches 50. On the plus side, some companies report improved worker loyalty and increased profitability by bringing on staff as actual employees (vs. contractors).

The bottom line for risk management practitioners is to be aware of the situation and to recommend, where appropriate, that the client seek professional advice from a labor law specialist. It's far less expensive to pay for a consultation with a labor law expert than to try to defend a position against the IRS, especially in an IRS court where there is no appeal.

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