Bad-Acting Employers Shirk Taxes, Deny Workers' Rights
WASHINGTON, June 17
/PRNewswire-USNewswire/ -- The Teamsters Union supports efforts by the U.S. Senate to crack down on businesses that illegally
classify their employees as independent contractors, an egregious practice that companies use to avoid paying millions in state and federal taxes.
The Senate Health, Education, Labor and Pensions Committee
held a hearing today to discuss efforts to crack down on the growing problem of misclassification. More than 40 states are currently looking into ways to punish bad-acting employers who misclassify workers, and 15 states have said that collectively, misclassification costs them $3.2 billion annually.
"Irresponsible employers who misclassify workers do this for one main reason: to avoid paying their share of state and federal taxes so they can pad their profits," said Teamsters General President Jim Hoffa. "These companies also hurt workers by not properly giving them the benefits they deserve as full-time workers."
"Workers who are misclassified as independent contractors get no sick time, vacation, health benefits or any of the rights or legal protections afforded to full-time employees under the law," Hoffa added. "The Teamsters are determined to make sure this practice comes to an end."
The Teamsters have been waging a successful campaign to battle misclassification. In April, the Nebraska Legislature passed a bill making it illegal for employers to improperly classify workers as independent contractors. Teamsters Local 554 in Omaha, Neb., worked for nearly two years to get the bill passed.
Other states have been making great strides in fighting misclassification. In Nevada, the State Commission on Misclassification adopted recommendations on bad-acting employers that included fines of up to $25,000 per misclassified worker. It also has recommended the creation of a state misclassification task force.
In just one year, the Iowa Workforce Development Agency found 182 employers out of 251 investigated had misclassified 1,565 workers. The agency recouped more than $1 million in taxes and $342,000 in penalties.
In Vermont, a new law mandates that the Labor Department must issue a stop-work order if an investigation reveals that there are workers who are not covered by workers' compensation insurance. The new law also enhances existing penalties and adds new ones, including civil and criminal fines and imprisonment for violating a stop-work order.
At the Port of Los Angeles, truck drivers work long hours, but are paid by the load because they are classified as independent contractors. If they are hurt or sick and cannot work, they are not paid. It's no wonder their trucks have been called "sweatshops on wheels."
The Teamsters also praised other efforts to crack down on misclassification. In April, a bill was introduced that would make worker misclassification a violation of federal labor laws. Another bill would close the tax loopholes that let businesses off the hook for misclassification. And the Obama administration has proposed a new Labor Department initiative to step up enforcement and help states that are doing a good job of going after violators.
Each year, more than $4.7 billion in federal income and employment tax revenue is lost due to misclassification and billions more are lost at the state level.
Founded in 1903, the International Brotherhood of Teamsters represents 1.4 million hardworking men and women in the United States, Canada and Puerto Rico. For more information, visit www.Teamster.org.
SOURCE International Brotherhood of Teamsters
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The following is the complete text of IRS Section 1706, defining the treatment of workers (such as contract engineers) for tax purposes. It is followed by a 
conference committee report regarding the intended interpretation of Section 1706 and the relevant parts of Section 530, as amended.
SEC. 1706. TREATMENT OF CERTAIN TECHNICAL PERSONNEL.
(a) IN GENERAL - Section 530 of the Revenue Act of 1978 is amended by adding at the end thereof the following new subsection:
"(d) EXCEPTION. - This section shall not apply in the case of an individual who pursuant to an arrangement between the taxpayer and another person, provides services for such other person as an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work."
(b) EFFECTIVE DATE. - The amendment made by this section shall apply to remuneration paid and services rendered after December 31, 1986.
Note:
- "another person" is the client in the traditional job-shop relationship.
- "taxpayer" is the recruiter, broker, agency, or job shop.
- "individual", "employee", or "worker" is you.
Conference Committe Report on Section 1706 of the 1986 Tax Reform Act
5. Treatment of certain technical personnel
Present Law
Section 530 of the Revenue Act of 1978, as amended, provides generally that taxpayers who in the past had a reasonable basis (such as past industry practice) for not treating workers as employees may continue such treatment under certain circumstances, without incurring employment tax liabilities.
House Bill
No provision.
Senate Amendment
The Senate amendment provides that section 530 of the Revenue Act of 1978 does not apply in the case of an individual who, pursuant to an arrangement between the taxpayer and another person, provides services for such other person as an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work. This provision is effective for services performed after the date of enactment. By virtue of the exception to section 530 of the 1978 Act provided under the Senate amendment, the prohibition against issuance of regulations or rulings concerning employment tax status in section 530 of the 1978 Act does not prohibit issuance of regulations or rulings with respect to the employment tax status of individuals with respect to whom the Senate amendment applies.
Under the Senate amendment, it is intended that certain individuals retained by firms providing technical services are classified, for income and employment tax purposes, as employees or as independent contractors under the generally applicable common law (nonstatutory) standards without regard to section 530 of the Revenue Act of 1978. Technical services firms have retained engineers, designers, drafters, computer programmers, systems analysts, and other similarly skilled personnel who are engaged in lines of work similar to those listed for assignments for clients of the technical services firms. Some of these individuals have taken the position that they should be treated as independent contractors, which would relieve the technical services firms of the obligation to withhold income and employment taxes from their earnings.
The Senate amendment applies whether the services of such individuals are provided by the firm to only one client during the year or to more than one client, and whether or not such individuals have been designated or treated by the technical services firm as independent contractors, sole proprietors, partners, or employees of a personal service corporation controlled by such individual. The effect of the provision cannot be avoided by claims that such technical service personnel are employees of personal service corporations controlled by such personnel. For example, an engineer retained by a technical services firm to provide services to a manufacturer cannot avoid the effect of this provision by organizing a corporation that he or she controls and then claiming to provide services as an employee of that corporation.
This provision does not affect the application of Code section 414(n), relating to employee leasing, to technical services personnel in circumstances where that provision applies under present law.
Also the provision does not apply with respect to individuals who are classified, under the generally applicable common law standards, as employees of a business that is a client of the technical services firm.
Conference Agreement
The conference agreement follows the Senate amendment with a technical modification clarifying the language of the Senate amendment to conform to the language of section 530 of the Revenue Act of 1978 and with an amendment to the effective date. The conferees further clarify that the provision does not affect the application of the Treasury's authority under Code section 414(o) to prevent avoidance of certain employee benefit requirements. The conferees believe that the provision will provide more consistent tax treatment of individuals performing services in the technical service industry.
The conference agreement is effective for remuneration paid and services performed after December 31, 1986.