Employee Classification Audit Calculator
Assess worker misclassification risk and estimate potential back-tax liability using IRS and DOL guidelines.
Does the company control how work is done? (instructions, training, etc.)
Does the company control financial aspects? (tools, profit/loss, exclusivity)
Written contracts, benefits, permanency, integral work?
Formulas Used
Risk Score: (Behavioral + Financial + Relationship) / 15 × 100%
Total Wages: Workers × Avg Annual Pay × Years
Employer FICA: Total Wages × 7.65%
Employee-Side Taxes (Sec. 3509a): Total Wages × (1.5% income tax + 1.53% employee FICA)
FUTA: Workers × min(Avg Pay, $7,000) × Years × 0.6%
IRS Penalty: (Employer FICA + Employee-Side Taxes) × 25%
Interest: (FICA + Employee Taxes + FUTA) × 8% × (Years ÷ 2)
State Tax: Total Wages × State Rate
Risk-Adjusted Liability: Total Liability × Risk Score %
Assumptions & References
- IRS Common-Law Control Test: behavioral, financial, and type-of-relationship factors (IRS Publication 15-A).
- IRS Section 3509(a) reduced rates apply when Forms 1099 were filed; Section 3509(b) applies otherwise (doubles employee-side rates).
- FICA rate: 7.65% employer share (6.2% Social Security + 1.45% Medicare) per IRC §3111.
- FUTA: 6% gross rate less 5.4% standard state credit = 0.6% net on first $7,000 per worker per year (IRC §3301).
- IRS underpayment interest rate: 8% per annum (2024 federal short-term rate + 3 points, IRC §6621).
- Failure-to-withhold penalty modeled at 25% of unpaid taxes; actual penalties range 2%–15% per deposit plus potential 100% Trust Fund Recovery Penalty (IRC §6656, §6672).
- State tax liability is an estimate; actual exposure varies by jurisdiction.
- DOL ABC Test (used in many states) and IRS 20-Factor Test inform the scoring rubric.
- This calculator does not constitute legal or tax advice. Consult a qualified employment tax attorney.