Crackdown on worker misclassification

In an effort to increase tax revenue and to ensure that workers receive the protection and benefits to which they are legally entitled, Congress has proposed legislation to combat misclassification of W?2 employees as 1099 independent contractors.  In addition, misclassification costs taxpayers, businesses and individuals alike, in lost funds for the Treasury, Social Security, Medicare, and Unemployment Insurance.  In an amendment to the Fair Labor Standards Act, employers would be subject to a civil penalty as much as $1,100 per instance and up to $5,000 for repeat violators.  Furthermore, the Obama administration seeks to repeal Section 530 of the Revenue Act of 1978 which allows certain workers to be classified as 1099s under specific circumstances.  Once that class is determined, the IRS is prohibited from reclassifying misclassified workers and new hires.  Proposed changes would give employers the opportunity to correctly classify workers before subjecting them to penalties.  In addition, the IRS would have an increased role in providing guidelines and helping employers interpret common?law standards.  Obama’s proposed 2012 budget includes $46 million to combat misclassification.