Posted on March 1, 2010

Many nonprofit organizations (and other businesses) treat workers as independent contractors in order to avoid paying payroll taxes. If an organization should have treated workers as employees, it may be in danger of owing back taxes, fees, and penalties to state and federal governments. A recent New York Times article discusses the federal and state governments’ more aggressive enforcement regime against organizations who improperly report workers as independent contractors.

The Obama administration plans to expand investigation of companies for misclassification of workers by hiring 100 more enforcement personnel. The IRS has already begun auditing 6,000 companies. More than two dozen states have increased enforcement, often by enacting harsher penalties. State departments of labor may become aware of a misclassification issue when an “independent contractor” files an unemployment claim against a business. The labor department often finds that the organization should have treated the claimant as an employee.

It is important to note that many nonprofit organizations (and other businesses) have a difficult time determining whether their workers are independent contractors or employees. The line is not always clear between the two, and often the distinction is based on specific factors unique to the organization.

For assistance in classifying the workers at your nonprofit organization, contact Pro Bono Partnership of Atlanta.

For the full article, click here.