Contingent Workforce Solutions

December, 2009 - Taxpayer Responsibility, Accountability and Consistency Act of 2009 (S.2882)

Senator John Kerry (D-Mass.) has introduced legislation to amend the Internal Revenue Code of 1986 to modify the rules relating to treatment of independent contractors to make it more difficult and costly for businesses to incorrectly classify employees as independent contractors. The bill is co-sponsored by Senators Dick Durbin (D-Ill.), Tom Harkin (D-Iowa), Chuck Schumer (D-N.Y.), Sherrod Brown (D-Ohio), Bob Menendez (D-N.J.), and Paul Kirk (D-Mass.).

The Taxpayer Responsibility, Accountability and Consistency Act of 2009 will ensure workplace protections according to its authors. In addition to significantly increasing the amount of penalties associated with filing tax returns with incorrect information concerning individuals' employment status, the bill would change the "safe harbor" provisions of Section 530 of the Revenue Act of 1978. Section 530 of the Revenue Act of 1978 provides a loophole for employers to treat a worker as an "independent contractor" for employment tax purposes, regardless of the worker's actual status under the common law test, unless the employer has no reasonable basis for such treatment or fails to meet certain requirements. Section 530 is commonly referred to as a "safe harbor." The amended safe harbor provision would only consider a business to have such a reasonable basis for classifying a worker as an independent contractor if it, or its predecessor, has not treated any other individual holding a substantially similar position as an employee since December 31, 1977, and the business's treatment of the worker as an independent contractor is in reasonable reliance on: (1) "a written determination ... addressing the employment status of the individual or an individual holding a substantially similar position" with the business; or (2) "a concluded examination (for employment tax purposes) of whether the individual (or an individual holding a substantially similar position) should be treated as an employee."

If passed into law, the bill would also grant individuals classified as independent contractors the right to petition the Secretary of the Treasury for a determination of their status for employment tax purposes.

"This is about leveling the playing field and ensuring that America's workers receive the protections and pay they deserve," said Sen. Kerry. "We cannot continue to reward businesses who refuse to play by the rules." "When workers are misclassified as independent contractors, they are denied rights to overtime, minimum wage, unemployment insurance, and workers compensation," said Sen. Brown. "Misclassification also puts employers who play by the rules at a substantial disadvantage. This legislation will ensure that workers receive the protections they deserve and that companies that play by the rules remain competitive. During times of record budget challenges, we need to close loopholes that undermine federal and state budgets." "This is a question of basic fairness," said Sen. Kirk. "For too long, Congress has allowed American workers to be short-changed by being misclassified by their employers as independent contractors instead of employees, at a cost of billions of dollars each year to the Treasury. This legislation makes sure that our hard-working men and women are fully compensated and receive benefits commensurate with the work they do."

The Taxpayer Responsibility, Accountability and Consistency Act of 2009 will:

• Address the current loophole by requiring information reporting and making changes to the safe harbor
• Require businesses that pay any amount greater than $600 during the year to corporate providers of property and services to file an information report with each provider and with the Internal Revenue Service (IRS)
• Revise the safe harbor to reduce abuses and ensure employers have a "reasonable basis" for not treating an individual as an employee

For additional details on the Taxpayer Responsibility, Accountability and Consistency Act of 2009, please refer to the Synergy Spotlight Blog dated November, 2008: New Legislation Introduced on Employee Misclassification.

| | |