States Try Reclassifying Workers

 

 

 

States are considering legislation to redefine independent contractors as employees, making employers who hire them subject to increased taxes, more paperwork, and even criminal penalties for classification mistakes.

 

While unemployment has shrunk to its lowest level in decades, the use of independent contractors has swelled. In February 2005, there were 10.3 million independent contractors representing 7.5% of the workforce, according to the Labor Department.

 

"These state proposals would be detrimental to small businesses," says Giovanni Coratolo, executive director of the U.S. Chamber's Council on Small Business. "Small businesses need maximum flexibility in working arrangements."

 

Currently, 29 proposals are moving forward at the state level, according to John Ferraro of the Coalition for Fairness in Tax Compliance, and there has been a rise in activity over the last 18 months.

 

States are considering tighter rules on independent contractors as a way to raise tax revenue, both Coratolo and Ferraro say. If companies are forced to redefine independent contractors as employees, they'll be required to pay workers' compensation and unemployment taxes.

 

In addition, the legislation would punish employers if their contractors were found to have fraudulently underreported their income or if the business failed to withhold the proper amount for taxes. Reclassification is backed by union groups looking to expand membership.

 

For more information, go to www.uschamber.com/goto/workforcereport.