Independent Contractor Compliance Blog - by Collabrusâ„¢

Sacramento and Washington - Over the past several years lawmakers in both Sacramento and in Washington D.C. have proposed a series of laws to tighten up the rules and increase the penalties for misclassifying independent contractors.  These bills were submitted by the elite of the federal and state lawmakers and cosponsored by other powerful politicians.

Where are they now?

The economy and budget issues at both the state and federal levels have slowed their passage.

Because of the economy and the resulting government budget issues, both the federal and state bills have been put on a back burner temporarily.  However, when you search these bills they are not dead-only waiting in committee.  This is significant, especially considering the powerful sponsors and cosponsors of the concepts.  For example:

In California

SB 1490

Introduced by Senator Padilla February 21, 2008

Amended on March 27, 2008

Status: Active

May 22, 2008: First hearing in committee and held under submission

Summary:  Requires any employer who hires a contractor to give the contractor a notice that explains: the worker’s status as a contractor; the impact that status has on the worker’s tax obligations and labor and employment protections; and that the worker may request a written determination from EDD as to whether the classification as an independent contractor is correct. EDD must also send a notice to the contractor. The employer must maintain copies of the notice and information about the contractor for a period of two years and provide that information upon request to the State.

 

AB 2879

Introduced by Assembly Member Leno February 22, 2008

Amended on August 4, 2008

Status: Active

August 8, 2008: Sent to committee and held under submission

Summary:  This bill requires the Labor and Workforce Development Agency’s Labor Commissioner to identify and recommend specific businesses for tax audits.  The Labor Commissioner would identify the targeted companies through the Economic and Employment Enforcement Coalition (EEEC), which is a joint government task force that conducts unannounced “sweeps” of businesses for labor law violations.  I’ve reported some of the EEEC’s activities to you in the past.  The business’ information would be sent to the Franchise Tax Board (FTB) and the Employment Development Department (EDD) for a tax audit by one or both.

 

Federal level bills

HR 6111

Sponsor: Rep Robert E. Andrews, NJ

What is really significant about this bill is there are 23 cosponsors!

Introduced on 5/21/2008

Summary: It’s the House version of SB 2044 (see below).

On 6/2/2008 it was referred to House Subcommittee on Income Security and Family Support.

 

SB 2044

Sponsor:  Then Senator Obama

Co Sponsors:  Senators Barbra Boxer; Richard Durbin; Barbara Mikulski; Hillary Clinton; Edward Kennedy; and others…
Latest Major Action: Referred to Senate Committee on Finance on 9/12/2007

Summary: 

1. Grants the IRS the authority to force employers to reclassify workers if the IRS determines they are misclassified as IC’s.
2. Authorizes the IRS to issue regulations and revenue rulings establishing standards for properly classifying workers as IC’s.
3. Eliminates a major protection provision of the IRS’ Safe Harbor.
4. Sets up a procedure by which workers can challenge their classification as independent contractors.
5. It provides protections against retaliation for workers who take advantage of the challenge procedure.
6. Requires the IRS to report employers to the Department of Labor (DOL) if an audit finds misclassified workers.
7. Requires the DOL to investigate industries that are revealed by IRS data to have high rates of misclassifications (Again, think $10,000 per violation).
8. Requires DOL to create a poster that must be posted by businesses to inform workers of their right to challenge their classification as independent.
9. Requires businesses to notify independent contractors of their federal tax obligations and of their right to obtain a determination of their independent contractor status from the IRS.
10. Requires employers to keep detailed records relating to independent contractors (hours, days worked, rate of pay, etc) for three years.

 A matter of timing…

Both the State and federal lawmakers are returning again and again to the IC issue.  They want to make it harder to be, or employ, an IC.  With the political power behind these ideas I can see them getting a second wind after the economy issues are more or less settled.