Internal Audits Can Effectively Mitigate Risk
Lane Powell Shareholder Susan K. Eggum authored an article in the November 20 issue of the Oregon Daily Journal of Commerce addressing efforts of the Internal Revenue Service, the re-elected Obama administration and the U.S. Department of Labor (“DOL”) to recover estimated annual lost tax revenue of $54 billion. That estimated lost tax revenue is due to employers’ use of misclassified independent contractors (“ICs”) resulting in the avoidance of federal and state payroll withholdings. The re-doubled efforts of the Obama administration and the DOL to recoup this lost tax base includes the execution of memoranda of understanding with several states — including Washington state — that will agree to participate in the detection of non-compliant employers, as well as the charging and immediate referral of those employers to the IRS. Risk managers should give immediate and strict scrutiny to whether their employers’ ICs pass muster under the right to control or economic reality tests.
Employers recognize that the IRS’ offer of “amnesty” may end up inviting unwanted scrutiny from state authorities in unemployment departments. And employers also recognize that such a voluntary report to the IRS could draw the attention of plaintiffs’ lawyers, who might seek to recover for a class, workers’ unpaid benefits and overtime as well as attorney fees.