Employee or Independent Contractor?

Learning Lessons from Others

Late last year, the IRS determined that FedEx had incorrectly classified its drivers as independent contractors when they should have been classified as employees. The result? In 2002 alone, the IRS claims that FedEx owes $319 million for the taxes it should have been withholding from the drivers' paychecks. The IRS is still auditing for 2004 through 2006 (and maybe 2003). The Teamsters Union estimates that the "error" could cost FedEx close to $1 billion. FedEx obviously vows to fight the IRS.

Microsoft learned a similar lesson years ago when it was determined that it had misclassified employees as independent contractors. Since Microsoft misclassified the individuals as independent contractors, Microsoft had been denying them benefits that it had granted to individuals who were considered employees. The misclassification cost Microsoft $97 million.

You will want to keep a look out for development in this area particularly if your company has a number of individuals its considers independent contractors. A misclassification can be a very costly error!