With unemployment on the rise, State labor departments are cracking down on the misclassifications of contractors that should in fact be employees as outlined by state law. State labor departments are now going one step further and working collaboratively with the IRS on these issues. The greater amount of communication between these agencies has opened the door for prior year(s) employment tax issues that can lead to a significant tax liability. The risk of maintaining your workers as “contractors” rather than “employees” has just gotten a whole lot riskier. On a positive note, IRS has also started a voluntary compliance initiative for employers who choose to concede and re-classify their workers as employees.
Follow this link to a full discussion on the issue: http://www.accountingtoday.com/ato_issues/25_11/voluntary-worker-classification-program-IRS-60567-1.html?pg=1