The United States government is funded on a W-2 income taxation system. Today, both state and federal treasuries are depleted thanks to the large numbers of unemployed. Further, companies are trying to cut costs by outsourcing work to staffing firms, statement of work companies or independent contractors. As a result, we are seeing a hefty increase in the numbers of 1099s.

Concerned that it is losing too much W-2 income, government regulators are scrutinizing businesses to determine if their independent contractors should have been classified as employees and, therefore, subject to tax withholding in the course of their work. The battle is on. As these two forces collide it is apparent that it's easier to collect money from a company than it is from millions of individuals.

If President Obama's 2011 budget passes, it would add hundred new enforcement personnel to crack down on the misclassification of workers as contractors. Meanwhile, the IRS in February began a comprehensive employment tax audit program, selecting companies at random to review their IC classifications, In light of the increased attention to the issue of IC classification, companies need to scrutinize their independent contractor practices.There are a number of third-party independent providers, such as MBO Partners, that specialize in services and programs for managing independent contractors.

Recent articles from CWS 30 and our sister publication, Contingent Workforce Strategies magazine, have discussed independent contractor classification issues at length, and have advised companies to vet their current IC workers to ensure they are in compliance.

As an end user of contingent labor, be careful about whom you bring in to vet your contractors. Staffing companies and MSPs alike are setting up partnerships with independent compliance providers to do the needful legwork. As always, do your research and check references.