On the subject of “independent contractors,” the law would have us heed William Shakespeare’s famous line. An employer that labels a worker as an independent contractor accomplishes nothing in the eyes of the law if the facts do not support the label. When an employer misclassifies a worker as an independent contractor, the employer exposes itself to a host of potential claims and liabilities, including but not limited to those related to payroll taxes, income tax withholding, workers compensation, unemployment insurance, overtime pay, and benefits.

To encourage employers to voluntarily fix worker classification errors, the IRS has created a new voluntary compliance program—the Voluntary Classification Settlement Program (VCSP)—through which eligible employers can significantly decrease their exposure for misclassifications.

With the advent of the VCSP, employers that use independent contractors should re-evaluate their independent contractor relationships and confirm whether the facts support the independent contractor label. If an eligible employer determines that one or more independent contractors should have been classified as employees, it may apply for relief under the VCSP. The following are highlights of participating in the VCSP...