The practice, in which the employer labels the worker as an independent contractor, rather than an employee, allows employers to avoid paying unemployment, Social Security and other taxes, and to avoid paying the minimum wage, vacation time and other benefits. In addition to the IRS and states cracking down on the practice as a means to enhance their revenue stream, private civil actions are beginning to arise, according to Jeffrey Davine, a partner with Mitchell Silberberg & Knupp. "Employers need to be very aware of how they classify employees, as potential enforcement could put a company out of business," he said. "If a business misclassi-fies a worker and the government ultimately finds they should have been an employee, in theory, the business is responsible for paying all taxes they should have withheld, plus the misclassified employee's share, plus interest and penalties. Multiply that by several employees and several years, and a business could be looking at a devastating tax liability."
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