The Internal Revenue Service ("IRS") recently announced a program to encourage employers to reclassify workers who were previously misclassified as independent contractors.  Through the Voluntary Worker Classification Settlement Program, companies may voluntarily reclassify independent contractors as employees for future federal employment tax purposes and settle any past payroll taxes on such workers' compensation.  To be eligible for the program, the company must have consistently treated the worker as a nonemployee, filed the required 1099 tax forms for the past three years, and not be under a worker classification audit.  Participating companies will be required to pay 10% of the employment tax liability that may have come due on compensation paid to the reclassified workers in the past year – with no interest or penalties due and a guarantee of no employment tax audit of reclassified workers for the prior years.  More information about the program and other conditions of participation is available at the IRS website

The program appears to be part of a larger effort by the IRS to curb worker misclassification.  Prior to announcing the program, officials from the Department of Labor, IRS, and several state agencies announced they would be partnering to reduce worker misclassification.  In fact, IRS regulators have reportedly observed that, due to the availability of the program, the IRS will be more vigilant about worker misclassification in the future.

While participation in the program may favorably address past federal employment tax liability, employers are cautioned that reclassification will likely have other consequences, both intended and unintended.  Thus, employers are advised to seek legal counsel before deciding whether to take advantage of the new IRS program.