According to the U.S. General Accounting Office, 10.3 million
U.S. workers were classified as independent contractors in 2005.
Between 1995 and 2005, there was a 24 percent increase in the
number of workers classified as independent contractors. However, a
report released by the Internal Revenue Service (IRS) in February
estimates at least 15 percent of employers misclassify their
By classifying employees as independent contractors, which
sometimes is referred to as "1099ing" based on IRS form 1099 issued
to independent contractors, an employer can avoid withholding
income taxes, withholding and paying Social Security and Medicare
taxes, and paying unemployment taxes on wages paid to employees.
According to the IRS, worker misclassification results in the loss
of at least $1.6 billion of federal tax revenue each year.
Employers who classify all their workers as independent contractors
also are not subject to the Family and Medical Leave Act or minimum
wage and overtime pay requirements.
Early in 2007, the IRS announced a renewed effort to identify
and punish employers who improperly classify employees as
independent contractors. By the end of 2007, the IRS had made good
on its promise. In December of that year, FedEx announced the IRS
had ordered it to pay $319 million in back taxes, fines and
interest in connection with 13,000 ground delivery drivers the IRS
believed FedEx had misclassified as independent...
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