With tax revenues plummeting, state governments are addressing the shortfall by taking a closer look at the way employers get work done.  As Ice Miller reported in November 2009, the U.S. Government Accountability Office (GAO) started the ball rolling when it issued a report in 2009 concluding that the federal government was missing out on billions of dollars of tax revenue as a result of rampant worker misclassification.  The GAO also concluded that the Internal Revenue Service (IRS) and the Department of Labor (DOL) were not doing enough to rectify the problem.

Both the IRS and DOL took heed.  Earlier this year, the IRS commenced a three-year tax audit program designed, in part, to determine whether employers have misclassified their workers as independent contractors.  The IRS has pledged to share the information it obtains with state governments, who, of course, are facing significant budgetary woes themselves.  More recently, the DOL instituted a misclassification initiative of its own.  The DOL intends to promulgate new record-keeping rules that it hopes will lead employers to discover misclassification within their ranks and then correctly classify the workers on their own.