WASHINGTON -- The Internal Revenue Service and 37 states reportedly are targeting companies that try to reduce payroll costs by illegally classifying workers as independent contractors instead of employees.

The practice costs governments billions in lost revenue.

It also can leave workers without workers compensation if they are injured on the job, and without benefits if they lose their job.

Many who have studied the problem believe it has worsened during the economic downturn, prompting the more aggressive recovery efforts by states.

A number of large companies, including Target, FedEx Ground and Comcast, already have been accused of cutting costs by removing workers from the payroll or bringing on new workers - sometimes through intermediary companies -- without making them full employees.

The Society for Human Resource Management, representing company personnel departments nationwide, said it surveyed members in October 2008 and found 12 percent of them were moving to use more independent contractors, contingent, and temporary workers because of the recession.

By designating workers as "independent contractors," businesses can save as much as 30 percent of payroll -- avoiding unemployment insurance and workers compensation payments, as well as the employers share of payroll withholding.

The practice deprives states of revenue, even as rising jobless rates strain their budgets. The nation's unemployment rate in January was 9.7 percent.

Typically, unless workers fight for and win a ruling that they should have been treated as full employees, they aren't able to collect workers compensation for an injury or unemployment benefits when left jobless.

The federal Government Accountability Office estimates that employee misclassification resulted in the underpayment of an estimated $2.72 billion in Social Security taxes, unemployment insurance taxes and income taxes in 2006, the last year for which figures are available. The IRS said it is beginning a three-year study of the issue.

The state crackdowns include:

New York: A multi-agency team reported finding nearly 31,500 cases of employee misclassification and nearly $390 million in unreported wages from Sept. 2007 and the end of 2009. It had ordered employers to pay more than $28 million in past-due wages, taxes and penalties.

California: Orange County prosecutors said last year they would seek $38 million from a couple for workers' compensation fraud for failing to pay premiums and submitting claims for 42 injured but uninsured workers at their construction companies.

Florida: A 2008 statewide grand jury found some construction contractors conspired with check-cashing stores to fake payments to a bogus subcontractor, cash the checks themselves and pay workers cash, under the table.

Ohio: The state's Bureau of Workers' Compensation ruled last year that a former state attorney generals top aide improperly classified all four employees at his Youngstown construction firm; on appeal only two were found misclassified. The state won't say how much he owes in restitution.

Some companies say using independent contractors helps them keep costs down and stay flexible in an increasingly tough and competitive economy.

Some brand-name companies have been sued for alleged employee misclassification. FedEx Ground, a subsidiary of Memphis-based FedEx Corp., has been sued more than 45 times for classifying package delivery drivers as independent contractors. The company maintains its drivers are small-business owners, who can own multiple routes and expand their business as they wish. Court rulings have been split.

Both cable television giant Comcast and Target have been sued for allegedly hiring intermediary companies that deny benefits to workers. Plaintiffs included janitors who worked in Target stores in Texas and cable TV installers in Massachusetts. Both Target and Comcast maintain the workers suing were never employees of theirs.

"Misclassification of employees as independent contractors results in violations of any number of federal and state employment benefit and protection laws, and state and federal tax laws, including minimum wage and overtime violations," said Nancy Leppink, deputy administrator of the U.S. Labor Department's Wage and Hour Division.