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If you are a regular reader FoxHire‘s blog, you already know that the misclassification of W-2 Employees as 1099 Independent Contractors is a huge issue right now. We’ve written numerous articles regarding the government’s continuing efforts to crackdown on misclassification.

Here is just a sampling of the government’s recent efforts in its war against misclassification:

  • President Obama allocated $25 million in the 2011 proposed budget to targeting employers who misclassify employees. This includes the hiring of 100 more enforcement personnel.
  • The Taxpayer Responsibility, Accountability, and Consistency Act of 2009 was introduced in December 2009 and would increase penalties for filing incorrect employee tax information from $50 to $250 per occurrence, and the cap on penalties per year would increase from $250,000 to $3 million.
  • The Employer Misclassification Prevention Act was also introduced in Congress and would require employers to post a notice informing workers of the importance of being properly classified as an employee or non-employee.
  • The IRS is trying to raise $7 billion over the next 10 years by targeting misclassification. As part of that effort, they will be randomly auditing 6,000 companies, and many states are also stepping up enforcement and sharing information with the IRS.
  • The Department of Labor’s recently unveiled “Plan/Prevent/Protect” initiative would require employers to perform a “classification analysis” anytime they exclude a worker from the Fair Labor Standards Act (FLSA) regulations and share the results of that analysis with the worker.

By helping clients correctly classify workers, recruiters can actually increase contracting income. How? Well,  if they have workers classified as 1099 Independent Contractors, recruiters can offer to convert them to W-2 Employees. Through the recruiter, they can put the workers on contract assignments and outsource the actual employment of those workers to a back-office service provider which will become the W-2 Employer of Record and handle all taxes, benefits, etc. This is a win-win for the recruiter, who then earns money for every hour the contractor works, and the company, who avoids the legal and financial risks associated with worker misclassification.

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