The Internal Revenue Service is cracking down on employers who misclassify workers in a government effort to boost tax revenue.

State studies have shown that local businesses misclassify anywhere from 10% to more than 60% of their workers as independent contractors to avoid paying payroll taxes and other employment-related expenses. Some small businesses turn to contractors to remain competitive while avoiding the 50-employee threshold that would require them to pay for employees’ health insurance, starting next year under the federal healthcare law, or pay a penalty. 

Many business owners blame the complex tax code, which does not make it easy to distinguish between full-time staff and independent contractors doing full-time work. The distinction is based on the employer’s degree of control over a worker, the length of the relationship and a series of other factors that are open to interpretation. Congress has proposed various bills to clarify the definition of independent contractors in recent years, including as recently as December, but none of the bills have passed.

Since September 2011, the government has collected $9.5 million in back wages for more than 11,400 workers who were misclassified as independent contractors by their employers, according to the Labor Department. Rather than risk an audit, and perhaps costly penalties, many small business owners are rushing to convert any long-term contract workers into permanent staff.