Classifying employees as independent contractors remains a hot legal subject among employers and the focus of private suit and government action, as FedEx learned recently.
In FedEx's Form 10-Q, filed quarterly with SEC, the company reports that an IRS audit team has "tentatively concluded, subject to further discussion," that FedEx delivery operators should be reclassified as employees for federal employment tax purposes. According to FedEx officials, it learned December 20 that the IRS would assess the tax and penalties (estimated to be about $319 million).
FedEx states it has strong defenses to the IRS's tentative assessment, but the taxes, interest, and penalties will accumulate during the legal battle to take place if there is no settlement of the dispute.
This example illustrates the need for employers to carefully consider how its employees are classified for tax purposes.