“The biggest trigger of IRS audits is misclassifying employees as independent contractors,” says Reva Lesonsky, of Yahoo Small Business.
Jean Murray in her article Employee vs. Independent Contractor Status pointed out some cases and why it is important to distinguish and classify employees from independent contractors and vice-versa.
Here’s a recent example (from 2015) that explains the difficulty: California’s Labor Commission said that an Uber driver should be classified as an employee, not an independent contractor, as Uber (the on-demand ride sharing company) claims. This ruling affected only one driver, and several other states have ruled that Uber drivers are contractors. Uber appealed the ruling and another similar one in Florida.
More of these lawsuits, including some of the class action variety, are or will be headed to the courts soon. Note that it’s not just the IRS, but states, that can make this determination.
Here in the Philippines, same cases may also be headed in our court rooms soon.