April 26, 2008

Bills To Combat “Independent Contractor” Misclassification Now In House And Senate

 NECA and allied organizations are working hard to combat a problem that costs the federal government an estimated $4 billion in lost tax revenue every year; denies thousands of Americans basic employee protections such as workers compensation and overtime pay; and puts honest  contractors (who properly classify field workers as employees, rather than independent contractors) at a substantial competitive disadvantage. Our efforts got a major boost on April 15 when the “Taxpayer Responsibility, Accountability and Consistency Act” (HR 5804) was introduced in the U.S. House of Representatives by several high-ranking House Ways and Means Committee majority members.

The new bill parallels the “Independent Contractor Proper Classification Act” (S 2044) which was introduced last fall by Sen. Barack Obama (D-IL) and six co-sponsors. Both measures seek to repeal Section 530 of the 1978 Revenue Act so that dishonest employers would no longer be able to use its “safe harbor” provisions as an excuse for misclassify their workers. This section would be replaced by new safe harbor provision contained within Section 3511 of the Internal Revenue Code that would more clearly define who can be classified as an independent contractor.

In addition, the legislation would increase the penalties imposed on taxpayers for failing to file correct information returns to the IRS. It would also allow workers to challenge their classification status and provide whistle blower protections for those who challenge their classification. Finally, the bills require increased IRS and Labor Department cooperation to promote greater tax code and labor and employment law compliance.

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According to the House bill's sponsors, the IRS found in its most recent analysis that 15 percent of employers misclassified 3.4 million employees as independent contractors.