Employers risk penalties

Under competitive pressures, some employers are tempted to label workers “independent contractors” rather than employees so they can avoid paying benefits, matching Social Security and Medicare taxes, paying federal and state unemployment taxes and following employment laws, such as the Fair Labor Standards Act.
This practice of misclassification has created substantial problems for affected employees and for the United States Treasury, the Social Security and Medicare funds, and state unemployment and workers’ compensation funds.
   As a result, the U.S. Department of Labor and Internal Revenue Service signed a memorandum of understanding in September 2011 so the agencies could work together and share information to reduce employee misclassification, close the tax gap and improve compliance with federal labor laws. While New Mexico is not one of the 13 states that have joined the memorandum of understanding, employers in the state should be concerned about properly classifying the people who work for them.

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