Misclassifying workers as independent contractors rather than employees can carry significant tax consequences. These tax consequences impact not only the employer entity but can also result in personal tax liability to the persons with an ability to direct the employer’s finances. For this reason, many employers who may have misclassified workers are hesitant to come forward, even if their workers may be more accurately classified as “employees.”

On September 21, 2011, the Internal Revenue Service (IRS) announced the Voluntary Classification Settlement Program (VCSP), in which the IRS permits employers to prospectively reclassify workers as employees with limited federal employment tax liability and without an IRS audit or administrative correction procedure. No change would need to be made to the treatment of the workers on a retroactive basis for federal employment tax purposes.