The impact of IRS-mandated employee reclassification

The IRS requires healthcare organizations to properly classify their workers as either independent contractors or organizational employees. In order to protect their organizations from IRS-imposed monetary fines, healthcare financial managers must understand how the IRS evaluates employment status and the consequences their organizations will face if they misclassify employees. Changes involving the status of independent contractors and organizational employees instituted by the Small Business Job Protection Act of 1996 are favorable to employers and clarify safehaven provisions under section 530 of the 1978 Revenue Act. Significant changes include requiring the IRS to notify employers of section 530's relief provisions when an audit begins, expanding section 530 relief, clarifying industry practice relief provisions, and shifting the burden of proof to the IRS. In addition to Federal legislation, the IRS introduced administrative initiatives, such as those contained in Announcement 96-13, to clarify worker reclassification issues. In Announcement 96-13, the IRS implemented a three-part plan that includes a test classification settlement program, an appeals process, and a training manual to clarify these issues.