Independent Contractor Compliance Blog

Already one of the toughest states on regulating IC Compliance, the State of New York’s Assembly created a new, tougher IC compliance bill (A11649) on July 8, 2010. The proposed law would:

• Significantly increase the penalties for “knowing and intentional” independent contractor misclassification.
• Establish a private right of action for an individual misclassified as an independent contractor.
• Allow a misclassified individual to be awarded triple civil damages if a court finds that the employer “knowingly and intentionally” misclassified the worker as an independent contractor. (“Knowingly and intentionally” is in the eye of the State of New York).
• Set the standard for IC compliance to be determined according to the standards of the Federal Fair Labor Standards Act (29 U.S.C. 201 to 219).
• Specify that the burden of proof is on the party for whom the work is performed to show independent contractor status “by clear and convincing evidence.” (“Clear and convincing” is in the eye of the State of New York).

The State of New York is just one of many that are taking much tougher stances on misclassifying workers. Many states, including Ohio, Vermont, Wisconsin, Connecticut, Colorado, Delaware and Maryland, have recently enacted laws targeting misclassification. A dozen others are considering new tougher laws. California, possibly already the toughest in the nation, also has several bills active to tighten down and add severe penalties for misclassification of workers.

The federal government has also been considering tougher legislation.

For example:

Senator John Kerry, D-Massachusetts, and Representative Jim McDermott, D-Washington, have both introduced almost identical bills this year that would

• 1. Greatly limit the current provisions of the Section 530 Safe Harbor.
• 2. Significantly increase penalties against companies who misclassify workers.
• 3. Require 1099 reporting of payments made to corporations.

The 1099 requirement for corporations is now law. It was a provision of the Heath Care Law passed earlier this year. The IRS is already working on how they will enforce this new requirement. For more on 1099′s for corporations see: The IRS is Requesting Input on 1099 Reporting Requirement for Corporations.

The federal bills also severely increase penalties. The proposed new costs for different types of violations range from $500 up to a maximum penalty of $3 million in certain situations.

However, possibly the most significant fact about these two federal bills is that President Obama himself co-authored a similar bill when he was a Senator, but it was lost in the confusion of his election campaign. He has since indicated he supports the newer bills and that he would sign them if either reaches his desk.

If you use IC’s in your business you need to be sure you are doing it right. This is not the time to gamble.