Employers must take care when classifying workers as independent contractors. If the Internal Revenue Service finds that an independent contractor should have been classified as an employee, it can assess the employer any or all of the following:

• An amount equal to 1.5 percent of wages (3 percent if no information return was filed).

• Up to 40 percent of the worker's share of Federal Insurance Contribution Act tax that should have been withheld.

• A civil penalty equal to 100 percent of the total amount of tax evaded or not collected. There can also be a criminal penalty of a $100,000 fine ($500,000 in the case of a corporation) and/or five years in prison.

• Up to $50 per Form W-2 that should have been filed.
• A civil penalty of $50 per W-2, if IRS finds the employer willfully failed to furnish correct W-2s to employees. There's also a criminal penalty consisting of a $1,000 fine and/or one year in prison for willful failure to furnish W-2s as required.
• Interest on past-due tax payments.

Clearly, improper classification of employees can be a costly mistake. The HR professionals at Management 2000, an Indiana PEO, have the knowledge and experience to help employers classify employees properly. With legally compliant human resource policies in place, employers can avoid costly litigation and hefty fines. For more information about the many human resource management services provided by Management 2000, call (317-549-2000 or visit www.management2000.com.