Is your nonprofit incorrectly classifying employees as independent contractors? This has been an area of hot attention by the IRS and Employment Development Department in the last few years and it’s about to get even worse.
California employers who willfully misclassify employees are fined between $5,000-$15,000 per incident, in addition to any other penalties or fines, and employers who engage in a pattern of misclassification are subject to fines of up to $25,000 for each violation. These employers also face delinquent employment taxes, interest, and penalties on both the state and federal level.
If you think your organization may be misclassifying employees, now is the time to take action. The IRS’s Voluntary Classification Settlement Program provides an opportunity for organizations to reclassify their workers as employees with partial relief from taxes. But only through June 30, 2013 is the IRS waiving certain eligibility requirements, thereby allowing more organizations to take part in the program.
Unfortunately the EDD doesn’t have a similar reclassification program, so contact your HR representative or employment counsel to discuss the effect a reclassification on the federal level may have on any misclassifications on the state level.