Misclassified Independent Contractor Crackdown May Be Worth $7 Billion

The government’s crackdown on companies misclassifying employees as independent contractors may yield $7 billion over ten years, the New York Times reports.

That may be part of the reason the IRS is auditing 6,000 companies to check for these violations.

Companies that make their employees pass as contractors save on unemployment tax, Medicare and social security, which is why it could be an attractive prospect from the employer side. (Employers say it’s not deliberate; that the rules are confusing. We can’t argue; it is the IRS and feds you’re dealing with.) Meanwhile, according to the New York Times, contractors on average don’t report 30 percent of their income—which deprives state and federal budgets of even more taxes.

The Labor Department estimates that up to 30 percent of companies misclassify employees; another federal study estimates 3.4 million regular workers are working as contractors right now, when they should be on W-2s.

As we’ve noted before, companies that are trying to do the right thing but are afraid of an audit can sometimes dump all their freelancers, just to be on the safe side, which is where things get unfortunate for the people just trying to make a living.

Most misclassified workers are, according to the Times, construction workers, truck drivers, engineers and home health aides. But a freelance writer or editor who only has one client, or is “asked” to come into the office, or has a business card with their client’s name on it, begins to look like an employee real fast in the eyes of the government.