Apartment firms are encouraged to prepare for possible Internal Revenue Service (IRS) investigations into whether workers are properly classified as employees or independent contractors. The IRS has announced that it will randomly audit 6,000 businesses over a three-year period. It is not targeting particular industries.
The IRS initiative follows a recent Government Accountability Office (GAO) report that found considerable confusion over differing Department of Labor (DOL) and IRS worker classification rules. The DOL and the IRS each investigate and enforce worker classification laws but they largely do so independently and under separate authority.
The GAO observed that there are no bright line tests for whether a worker is considered an employee under DOL or IRS rules. The DOL is planning a multiple-agency enforcement initiative of its own.
The Obama Administration has estimated that businesses misclassify 15 percent of their employees as independent contractors, which costs the federal government significant revenue. Meanwhile, legislation introduced in both the House and Senate (H.R. 3408 and S. 2882, respectively) would strengthen classification standards, toughen re-porting requirements and raise penalties against employers that intentionally misclassify workers.