The IRS and U.S. Department of Labor are cracking down on the misclassification of workers. It has become a high priority for both government agencies in these days of tight budgets due to the significant financial penalties that can be imposed on employers who improperly classify workers as independent contractors when they should be treated as employees. Merely calling a worker an independent contractor, even if there is a written contract, is not sufficient to make that worker an independent contractor. Instead, the IRS looks at many factors and uses a balancing test among them to make a determination on the proper status of a particular worker.
Many insurance agencies treat their producers as independent contractors to avoid having to pay FICA tax and provide benefits. In my opinion, many times such treatment is not warranted under the particular circumstances of the agency/producer relationship and those agency owners run the risk of an unwelcome visit from the IRS or Department of Labor and the imposition of signficant financial penalties. To find out if your agency is at risk, click here for a list of the factors used by the IRS and how they apply to a normal agency/producer relationship. If you have any questions after doing so, you can post a comment or contact me directly at firstname.lastname@example.org.