Many employers bring on independent contractors for short-term assignments or specific projects, and in many cases, that's fine and is not the sort of relationship the IRS is targeting in its VCSP program. Problems can arise when independent contractors function in similar roles and with similar work rules as employees, and these are the independent contractor relationships that the IRS program is intended to address.
A brief history: There are a few different "tests" for determining when someone should be considered as an independent contractor vs. an employee. It is beyond the scope of this post to delve too deeply into each of them, but they all focus on the same basic ideas - how much direction and control exists over the person's activities, whether there is an opportunity for profit and loss, who furnishes the equipment the individual uses, how the hours of work are set, and how long the individual will be working for the company. That is, just because an employer wants to call someone an independent contractor doesn't necessarily make it so.
The VCSP has been put in place to reduce the fines that could be levied and provide employers the ability to voluntarily reclassify workers as employees. There are some requirements to be eligible:
1. The employer must have treated the workers as nonemployees consistently.
2. The employer must have filed the required 1099 forms for the previous three (3) years.
3. The employer must not currently be under audit by the IRS.
4. The employer must not currently be under audit by the Department of Labor (DOL) or by a state agency regarding the classification of the workers.
In addition, employers must make application to participate in the program; the correct form is available on the IRS website - www.irs.gov. The IRS will review the application and retains sole discretion on whether an application is accepted.
If you are concerned about how you have classified your workers, contact us to learn more about independent contractor vs. employee classification tests!