News & Events

News & Events

11.7.2011

Reilly Quoted in Puget Sound Business Journal About IRS Relief Offer to Companies That Misclassify Employees as Contractors

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Lane Powell Shareholder Mike Reilly was quoted in the October 28 issue of Puget Sound Business Journal in the article “Tempting Fate.” In the article, Reilly discussed the Internal Revenue Services’ (“IRS”) offer to businesses that have been misclassifying workers as contractors to come clean and avoid back taxes. However, the IRS also stated that it might share information about workers’ classification with other federal and state agencies that could impose their own penalties and rules. Mike also examined the IRS’ September 21 amnesty offer, the Voluntary Classification Settlement Program, which gives employers a chance to reclassify workers properly without having to worry about paying back interest or penalties.

‘The IRS relief offer is really whipped cream on arsenic,’ warned Michael Reilly, who practices labor law at Lane Powell PC in Seattle. ‘The real risk is that the U.S. Department of Labor and state agencies have different standards than the IRS for who is an independent contract worker,’ … ‘This may look good on the surface, but it could be poison.’

Lane Powell’s Reilly advises employers large and small to conduct a ‘self-audit’ of their employee group when entering into any contract worker relationship to make sure that the job is structured as close to federal and state standards as possible. ‘You must have a written document spelling out the work and that this person is strictly an independent contractor.’ … ‘You don’t invite them to the company picnic. They have to be treated like they are not employees.’ As for employers who may be considering the new IRS amnesty offer, Reilly advises that they look at the big picture and carefully consider their wider vulnerabilities and possible costs before signing up. ‘On its face, if you know you’ve got an exposure with the IRS, the program may offer a good savings on taxes owned,’ he said. ‘But if you then have exposure for state workers’ compensation and state unemployment insurance payments, it could be a difficult situation.’

Read the full article (PDF).

This article first appeared in Puget Sound Business Journal.