Independent contractor--or tax scam?

• Author: Mejeur, Jeanne
• Position: TRENDS & TRANSITIONS

Uncle Sam and the states have had enough of a common tax scam, and they are doing something about it.

Here's how it works: Employers misclassify their workers as "independent contractors" rather than "employees" to avoid paying payroll taxes on them, costing states and the federal government millions of dollars in lost tax revenue annually. The practice also allows employers to dodge labor and wage laws and to avoid providing workers compensation coverage. The businesses gain an unfair competitive advantage by reducing their labor costs, which helps them in bidding on private sector and government contracts.

The McClatchy news organization conducted a year-long investigation into employee misclassification and recently released "Contract to Cheat." The report estimated that billions of federal tax dollars were awarded in federal contracts to businesses, particularly in the construction industry, that then avoided their tax obligations by misclassifying their workers.

The report estimated that nearly 40 percent of workers on public projects in southern states were misclassified.

Governments are fighting back. In September, the U.S. Department of...