On December 14, 2022, the U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS) signed and published a Memorandum of Understanding for Employment Tax Referrals (the "MOU"). The MOU establishes a system for referrals from the DOL's Wage & Hour Division (WHD) to the Small Business/Self Employed Specialty Employment Tax unit ("SB/SE"). The stated goal is: "To share information between the SB/SE and WHD to assist in the identification of emerging and ongoing employment tax compliance issues related to misclassification,"1 but its practical effect is to streamline the process for investigating and penalizing businesses that allegedly misclassify their employees as independent contractors. This is the latest memorandum of understanding between federal agencies focusing on perceived widespread worker misclassification in the labor market.2 Businesses should take this coordinated focus on worker classification as an opportunity to assess their workers' classifications and mitigate the risk of tax penalties resulting from misclassification.
While the main body of the MOU sets forth the terms of the agencies' cooperation, Appendix B, titled "U.S. Department of Labor Standardized Referral Form and DOL/IRS Decision Tree," refers to the partnership established by the MOU as the Joint Worker Misclassification Initiative. It sets forth a "standardized form and decision tree [that] was created to assist in outlining the necessary key information fields needed to...
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