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he number of independent contractors has grown steadily in recent years. These independent contractors are part of a rapidly expanding contingent workforce that includes temporary workers, leased employees, and consultants. Businesses like using these contingent workers because of the flexibility ofpaying them for specific tasks without long-term commitments and without having to provide costly benefits. By using independent contractorsinstead of employees,businesses can reduce costs and paperwork from workersâ compensation, unemployment insurance, state disability insurance, Social Security taxes, and incometax withholding.However, workers are not generally considered independent contractors unless they meet certain tests to ensure that they are not just misclassified employees. In numerous audits over thelast decade, the IRS has asserted that workers identifying themselves as independent contractors were actually employees. Some businesses that thought they were using independent contractors claim they were nearly bankrupted when the IRS classified the workers as employeesand demanded hundreds of thousands of dollars for back payroll taxes. Proposed health care legislation may provide IRS with its strongest weapon yet in its battle against this perceived misclassification of workers. President Clintonâs proposed health care plan would create a direct link between employment status and health care insurance obligations by requiring employers to provide
Journal of Corporate Accounting & Finance – Wiley
Published: Jun 1, 1994
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