As I discussed in recently post, the IRS new amnesty program to change independent contractors to employees. The program is called the Voluntary Classification Settlement Program or VCSP, which allows you to potentially reclassify independent contractors as employees.

To be eligible for the program, you must:

• Consistently treated the workers as independent contractors.
• Have filed all required Forms 1099 for the workers for the previous three years.
• Not currently being audited by the IRS.
• Not currently being audited by the Department of Labor or a state government agency concerning worker classification.
• If you were previously audited by the IRS or the Department of Labor concerning the classification of the workers, you will only be eligible if you complied with the results of that audit.

Once that you have done your paperwork and get accepted, you will have to pay the IRS just over 1% of the wages paid to the reclassified workers for the past year. You might be thinking that’s it? Yes, that’s it, no penalties and no interest, and you’re even protected from IRS liabilities from the past. If you have a weak case for contractor treatment, this could be your best bet.

Section 530

With all the other options to consider now, employers are feeling they have a lock on Section 530 relief may be least likely to sign up. After all, Section 530 relief allows employers to avoid liability for their past misclassifications and continue it!

Another important issue can be the effects of the state law. Although the IRS issues a closing agreement for the past, it’s not yet clear if the states will conform. Could your state view participation in the IRS program as an admission for the past?

Another issue you want to be concerned is how the workers may react. You want to speak with them to make sure they have no objections to being reclassified from independent contractors to employees. But with their new status, some workers might put together a claim against you for benefits and other for the past. This could be a consequence for reclassifying independent contractors as employees.

There also could be tort and agency liabilities to consider. Most employers will reclassify their workers for all purposes not merely with the IRS. They will begin paying unemployment insurance, workers’ compensation premiums and more. Liability issues could be in a gray area for a bit until the states law liability issue gets situated.

The IRS program can still be a great deal for some. But like most things with the IRS, you need to examine the whole picture before making a decision.