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.