Companies that hire supplemental contingent flight crews as Independent Contractors directly, or as Independent Contractors through a third-party payer, face costly, long-term, and severe consequences for treating employees as Independent Contractors.

If the IRS or DOL reclassifies your independent contractors as employees you face the following:

	Employment taxes (includes Federal Income Tax Withholding) on wages paid to misclassified workers
	Social Security and Medicare Contributions
	Unemployment Taxes
	Penalties, Fines, Interest
	Lawsuits for health and retirement plans, stock options, and other benefits entitled to employees
	Huge expenditures of time and money and mountains of paperwork
	Negative publicity and potential incarceration

Incorrectly treating employees as independent contractor is a means of avoiding employment taxes and avoiding other compliance issues.  Employment Tax Evasion is on The 2006 IRS Dirty Dozen List.  Read more about Who Are Employees?

Workers' Compensation issues may loom large if your contingent flight crews are incorrectly classified as independent contractors and are injured while on assignment, on your aircraft, in your hangar, on company premises, or anywhere the assignment takes them. You face the following:

	Lawsuits from injured workers or their estates
	Medical expense compensation
	Settlements for lost wages
	Settlements for death
	Legal defense fees
	Penalties

Aircraft Liability Policies exclude medical payments for bodily injury to a person hired to do work for or on behalf of any insured or tenant of any insured,  if benefits for the bodily injury are payable or must be provided under a workers' compensation or disability benefits law or a similar law.

Recent changes in the Fair Labor Standards Act   have significant effect on the classification of non-exempt employees, and overtime pay requirements for eligible employees working in excess of 40 hours a week.  Penalties for not following the Fair Labor Standards Act provisions can be costly.

Recently, the following companies were penalized for misclassifying workers as independent contractors rather than employees, and Fair Labor Standards Act (FLSA) violations.

HEWLETT-PACKARD -- faces a class-action suit and more than $300 million to be paid in damages for denied benefits. Assigned workers have filed a class-action lawsuit against Hewlett-Packard, claiming the company denied them benefits by improperly classifying them as independent contactors rather than employees.  They seek more the $300 million in damages.

MICROSOFT -- must pay nearly $97 million to compensate for denied benefits and employment tax penalties. Microsoft agreed to pay nearly $97 million in damages for benefit compensation payments and employment tax penalties for misclassifying its workers who had signed a contract saying they were independent contractors.  When the IRS reclassified these independent contractors as employees for withholding and tax purposes, the workers sued the company for benefits.

	TIME WARNER -- agreed to pay the U.S. Department of Labor approximately $5.5 million over denied pension and health benefits.
	STARBUCKS -- paid $18 million in a settlement.
	PACIFIC BELL -- paid a $35 million settlement.
	MERRILL LYNCH - has agreed to pay up to $37 million to settle claims that it failed to pay overtime wages.

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The information provided on this page is for informational purposes and is not intended as legal or accounting advice and should not be used as a substitution for consultation with professional legal or accounting advisors.  We have made every attempt to ensure that the information contained herein has been obtained from reliable sources.