Independent Contractor Classification: The Challenge of Doing It Right (Report‪)‬

ABSTRACT At a recent White House Conference on Small Business, attendees rated independent contractor (IC) classification disputes as the most pressing small business issue. The Internal Revenue Service (IRS) claims it loses billions of dollars each year in employment and income taxes due to improper classification. Over 8 million independent contractors are in use in the US and this number is expected to double within the next ten years. The current rules are complicated, confusing, and subjective; clarification and simplification of the existing worker classification guidelines is necessary. A survey of small businesses was conducted in a southeastern state concerning determination and use of independent contractor status. A second study was conducted with educational institutions with a slightly modified survey. We found that a third of the universities and colleges had policies in place for determining status of workers whereas smaller employers did not have a procedure to follow and appeared to be unconcerned with this lack of procedure. Both groups reported confusion in classifying workers properly.