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Behind the News: No Safe Harbor - CWS 30 October 2.19

CWS 30

A new piece of federal legislation aims at getting tough on independent contractor misclassification. "The Fair Playing Field Act of 2010"  was introduced in Congress in mid-September. The Act was launched by Sen. John Kerry, D-MA, and Rep. Jim McDermott, D-WA. It is supported by the White House and is expected to pass swiftly.
 
It closes the "safe harbor" loophole that allows companies to treat employees as independent contractors for tax purposes. No longer will employers be able to use the loophole as an amnesty from past violations of misclassifying employees as independent contractors. Attorneys warn that it will expose huge numbers of employers to past liability if they have not had a reasonable basis for classifying workers as contractors and subject them to future liability if they do not satisfy the legal tests for independent contractors.
 
The Fair Playing Field Act of 2010 will:
  • End the moratorium on IRS guidance addressing worker classification.
  • Require the Secretary of the Treasury to issue prospective guidance clarifying the employment status of workers for federal employment tax purposes.
  • Require those who use independent contractors to provide them with a written statement on their federal tax obligations, the labor and employment law protections that do not apply to them and their right to seek a determination from the IRS on their status.
  • Raise penalties for misclassification
"This reform is pro-worker and pro-business," said Sen. Kerry. "Today a tax loophole is being abused to deny workers basic protections and benefits. We shouldn't reward those who game the system while hard-working Americans are denied their due protections and businesses that play fair are disadvantaged."
 
The current law provides a "safe harbor" (Section 530 of the Revenue Act of 1978) loophole allowing employers to treat a worker as not being an employee for employment tax purposes, regardless of the worker's actual status under the common law test, unless the employer has no reasonable basis for such treatment or fails to meet certain requirements. It was a legal provision meant to reduce or eliminate liability as long as good faith was demonstrated.

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