DEFINING THE ISSUE


Attacks on the use of independent contractors on the increase


BY SCOTT GRANDYS Guest Writer Contractor Management Services


Over the course of the past three years


we have heard the following disturbing comments and more…


• The Internal Revenue Service will audit 6,000 U.S. companies to determine whether they pay all their required employment taxes to fund Social Security and Medicare benefits.


• Employee misclassification also generates substantial losses to the Treasury, Social Security and Medicare funds, as well as to state unemployment insurance and workers compensation funds.


• Employers often fail to classify such workers as employees leaving them subject to unfair treatment and disparate wages.


These are real statements made by


Federal Agencies such as the IRS and the US Department of Labor (US DOL). In the last three years we have also seen many attacks, on a State level, against companies that use Independent Contractors. These attacks continue to become more ferocious. The comments noted above reflect the message being passed down, on a federal level, to government employees by the current administration. When dealing with worker


classification there are three ways that the government can facilitate change:


• Legislation – This is a very time consuming and difficult process. In 2009 Congressman Jim McDermott (D-Wash.) introduced HB 3408 titled Taxpayer Responsibility, Accountability, and Consistency Act of 2009. The intent of the legislation was to amend


48


WE HAVE ALL SEEN INDEPENDENT CONTRACTORS FILE FOR UNEMPLOYMENT


BENEFITS AFTER TERMINATING THEIR CONTRACT. THE CHALLENGE TO GET THESE CLAIMS


DISMISSED HAS BECOME MORE DIFFICULT, AND EVEN IF YOU ARE SUCCESSFUL, THE FACT THAT A CLAIM WAS FILED IS NOW SHARED BY THE


BENEFITS DEPARTMENT WITH THE DEPARTMENT OF REVENUE (DOR) AT THE STATE DOL.


the Internal Revenue Code of 1986 to modify the rules relating to the treatment of individuals as independent contractors or employees, and for other purposes. This bill is still stuck in committee.


• Case Law – The way a court interprets the current legislation in any given state sets the guidelines used by agencies to determine a worker’s status based on the facts presented in any claim. For example…if a judge determines, in a citable case, that in order for a worker to be determined an Independent Contractor they must have a business entity (Corporation, LLC, LLP, etc.) set up, then the Department of Labor can determine a worker to be an employee if they are paid as a sole proprietor.


• Administrative Initiatives – The President can use federal agencies to facilitate change without going through Congress or the courts. This is the type of situation we face today as it relates to worker classification.


The current administration has


targeted workers classified as Independent Contractors. They claim to be investigating these workers because companies are mistreating them, robbing them of employee rights (benefits, overtime, vacation, etc.), and avoiding taxes and social security contributions. Since the administration has been unsuccessful in changing the laws regarding worker classification they have gone full throttle on administrative Initiatives. The most apparent of these initiatives


is with the US DOL. If you visit their website (http://www.dol.gov/whd/workers/ misclassification) you will see a page posted by the Wage and Hour Division titled Employee Misclassification as Independent Contractors. Essentially, US DOL has Memorandums of Understanding (MOUs) with 13 states around the country—and growing—as well as the IRS to share information surrounding a company’s use of Independent Contractors. Let me bring this theory down to where the rubber hits the road!


Arizona Trucking Association 2012 Yearbook


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