Determination of worker classification can be complicated but is essential to ensure proper wage and tax payments.  Improper classification can result in governmental fines and wage and hour lawsuits. The IRS and the Department of Labor have both stated their intent to reinvigorated enforcement efforts to end misclassification of employees as independent contractors. On September 19, 2011, the Internal Revenue Service (IRS) and the Department of Labor (DOL) signed a memorandum of understanding to share information and coordinate law enforcement on employee misclassification compliance. Two days later, the IRS launched the Voluntary Classification Settlement Program (VCSP).  Various studies have shown that 10 to 30 percent or more of employers misclassify workers as independent contractors.

This whitepaper is an overview of the classification of Employee vs Independent Contractor, and has three quick test that help employers determine how to classify.