IRS, states crack down on firms that illegally classify workers

02/12/2010 | Los Angeles Times (tiered subscription model)

The Internal Revenue Service and 37 states have started to clamp down on companies that try to cut payroll costs by illegally classifying workers as independent contractors rather than as full-time employees. The Government Accountability Office estimated that such misclassification cost the federal government about $2.72 billion in 2006. "I think the economic downturn has had a serious impact ... has exacerbated the problem," said Vermont state Rep. Warren Kitzmiller. "Businesses are looking to trim costs in every way they can, and some are coming very close to shading the legal with the illegal on that question."

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