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July 11, 2006
IRS Reminds Employers to Classify Workers Correctly

The Internal Revenue Service has issued a fact sheet to remind employers to classify workers correctly as independent contractors or employees.

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The IRS says that main factor a business must use in determining how to classify its workers is the degree of control the business has over its worker. The more control the business has over a worker the more likely it is that the worker is an employee rather than an independent contractor.

In the fact sheet, the IRS notes that businesses can use Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, to have the IRS make the determination.

You can view the fact sheet here .

Both the IRS and Department of Labor have raised concerns over how employers are classifying workers in the wake of Hurricane Katrina and other natural disasters. The Department of Labor has found a number of employers misclassifying Hurricane Katrina clean-up workers.

In March, the IRS published IRS Headliner 152, IRS Offers Tips on How to Correct Misclassification of Employees, which notes that Internal Revenue Code Section (IRC §) 3509 provides an opportunity to correct the tax treatment of misclassified employees.

You can view the publication here .

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