Human Resources News & Insights

Feds again look to tighten the screws on worker classification

Be careful. President Obama and congressional Democrats have declared war on companies that wrongly classify employees as independent contractors.

First, President Obama’s Fiscal Year 2011 budget requested $25 million to help strengthen federal and state initiatives to spot and eliminate worker misclassification.

The budget also requested an additional $12 million and 90 new Department of Labor investigators to seek out employers that are not in compliance with worker classification laws.

And now Sen. John Kerry (D-MA) and Rep. Jim McDermott (D-WA) have introduced the Fair Playing Field Act of 2010 to the House and Senate. The goal: close tax gaps and ensure employees aren’t denied benefits because they’re misclassified as independent contractors.

The bill would:

  • Allow the Internal Revenue Service (IRS) to issue new guidance regarding worker classification.
  • Require the secretary of the Treasury to issue new guidance clarifying the employment status of individuals for Federal employment tax purposes.
  • Raise penalties for those who misclassify workers.
  • Require those who use independent contractors to provide them on an ongoing basis with a written statement explaining the Federal tax obligations of independent contractors, the labor and employment law protections that do not apply to them and their right to seek a determination of their employment status from the IRS.

Recently, to help companies properly classify workers, the IRS released a rundown of the criteria it uses to identify whether an individual is an employee or independent contractor. Check it out here.

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