Due to the revenue shortfalls, federal, state and local governments are finding revenue from auditing employers who mis-classify workers as contract labor instead of employees. President Obama has asked Congress for another $25 million to add more DOL and IRS auditors to address this issue. But states are getting even more aggressive in auditing employers.For example, Ohio ramped up their examinations in this area. Out of 88 companies that were audited in 2008-09, 80 has misclassified workers, resulting in back taxes, penalties and interest in the amount of $468,000. For 2009-10, Ohio found misclassified workers in 60 out of 64 employers that were examined. If examined, these employers spend large sums with attorneys trying to minimize their losses.
Nonprofit organizations are not exempt from the mis-classification issue. Nonprofit organizations should examine their practice and re-classify workers that should be treated as employees as soon as possible. Prudent nonprofit organizations seek legal advice before classifying any worker as contract labor.