The 2011 federal budget proposed by the Obama Administration contains a request for $25 million in funding for the Department of Labor to conduct a "misclassification initiative." This program, if approved, would allow the DOL to hire additional investigators dedicated to finding workers incorrectly classified by companies as independent contractors. The DOL believes that many workers who are actually employees are misclassified, intentionally or in error, by employers as contractors. This leads to failure to properly pay FICA taxes, failure to withhold income taxes, and a host of other legal problems under federal and state law. For instance, independent contractors are not covered by worker's compensation insurance, the unemployment compensation system, or eligible to participate in employee benefit plans for retirement and insurance. If the classification is later challenged in a government audit or private lawsuit, it can result in massive liability for taxes, penalties, interest, and other damages. Unfortunately, classification is often not as simple of an issue as it might seem, given that there is no one standard test under federal and state law, but a variety of statutory and common law tests depending upon the law at issue. This issue will only continue to get more attention (Congress has already been considering a law to standardize the definition of an independent contractor), and employers will be wise to proactively assess their risks in this area, making corrections where necessary.