MCAA Weekly Government Affairs Update: January 16, 2008
GOVERNMENT AFFAIRS NEWS
MCAA to Hold Second Independent Contractor Summit
The independent contractor business model continues to be under siege from state regulators, trial lawyers, and increasingly the federal government. The MCAA plans to hold an independent contractor summit on April 23, 2008 in Washington, DC. The summit will consist of educational sessions with outside speakers, closed-door discussions amongst MCAA members, and meetings on Capitol Hill with Members of Congress.
Internal Revenue Service Aims to Clarify Standards
The IRS used the December 2007 issue of its Tax Gap publication to clarify its independent contractor guidelines. The fact sheet, “Employment Taxes and Worker Classification,” focuses on the level of control the worker has in the performance of his or her job. According to the fact sheet, three types of control are significant in employment. They are behavioral control, financial control, and the type of relationship. The fact sheet also contains helpful additional resources at the bottom of the page. To view the fact sheet, click the link. http://www.irs.gov/newsroom/article/0,,id=177092,00.html
IRS Slams FedEx for Misclassifying Independent Contractors
The Internal Revenue Service (IRS) notified FedEx in late December that it anticipated assessing tax and penalties of $319 million plus interest for misclassifying FedEx Ground delivery drivers in 2002. FedEx believes that ultimately it can persuade the IRS to accept its classification of the drivers. The issue is over employment taxes for some 15,000 drivers FedEx employs as contractors. FedEx’s use of independent contractors has generated lawsuits in 36 states.
FedEx has in its favor, analysts say, is that the IRS sanctioned the company’s use of independent contractors for pickup and delivery back in 1994 when the company was Roadway Package Systems (RPS). Analysts note that there have not been substantial changes in the business model since that agreement was signed.
In early January, FedEx said it is preparing to meet with an audit team from the IRS to discuss the IRS’s tentative conclusion that FedEx should reclassify its delivery drivers as employees rather than independent contractors. While FedEx says its employment structure is sound, analysts say it will take years to sort the issue out; including what FedEx might owe in back taxes for 2004-2006.
FedEx claims to be remaining committed to its business model for the time being. In mid January they announced it has no plans for major nationwide changes in the company’s reliance on contract drivers for its ground delivery division. FedEx currently utilizes more than 290,000 employees and contractors and has annual revenues of $36 billion.
Transportation Panel Recommends Increasing Gasoline Tax
The Wall Street Journal reports the National Surface Transportation Policy and Revenue Study Commission will recommend extensive improvements to the nation's transportation infrastructure and a massive increase in taxes. This 12-member board is chaired by United States Transportation Secretary Mary Peters.
Nine commissioners favor drastically boosting gasoline taxes. Gasoline taxes are currently the biggest revenue source for highway and mass-transit funding. The existing taxes, 18.4 cents a gallon for unleaded gasoline and 24.4 cents a gallon for diesel, have not been raised since 1993. The Commission’s recommendation will be to raise gas taxes by as much as 40 cents a gallon over five years.
Secretary Mary Peters, however, opposes raising gas taxes because it would result in higher pump prices for motorists. Peters instead plans to call for a greater reliance on private-sector investment and tolls.
New Jersey Governor Plans Increase is Highway Tolls
New Jersey Governor Jon Corzine proposes a plan to generate billions of dollars by increasing tolls. The proposed plan will increase tolls 50 percent in 2010, 2014, 2018, and 2022. After 2022, the tolls would increase every four years until 2085 to reflect inflation. In the next 10 years, the average toll would go from $1.20 to $5.85 on the turnpike, 35 cents to $1.60 on the parkway, and 50 cents to $2.40 on the expressway. The governor wants to use the money to pay off the $16 billion in state debt and fund other transportation projects. New Jersey is currently the fourth-most indebted state.
Advisory on Independent Contractor Statute
Massachusetts Attorney General Martha Coakley has requested comments on a proposed advisory on the independent contractor statute. The Independent Contractor Consulting Group has decided to draft comments to be submitted to the Attorney General. The MCAA has been active members of this coalition for many years.
In reviewing situations for misclassification, the Attorney General considers some factors to be strong indications of misclassification that warrant further investigation and may result in enforcement. These include:
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Individuals providing services for an employer that are not reflected on the employer’s business records.
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Individuals providing services who are paid “off the books”, “under the table”, in cash or provided no documents reflecting payment.
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Insufficient or no workers’ compensation coverage exists.
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Individuals providing services are not provided 1099s or W-2s.
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Independent contractors performing similar or identical services as employees of the same entity.
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Contracting entity providing equipment, tools and supplies to independent contractors or requiring the purchase of such materials directly from the contracting entity.
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Alleged independent contractors not paying income taxes or into the Unemployment Compensation Fund.
To view the new advisory, click here:
http://www.mass.gov/?pageID=cagosubtopic&L=3&L0=Home&L1=Workplace
+Rights&L2=Independent+Contractor+-+Proposed+New+Advisory&sid=Cago
Independent Contractor Misclassification is on the 2008 Agenda
The Chairman of the Indiana House Committee on Labor and Employment plans to pursue an ambitious series of initiatives which he feels protects the rights of workers. One initiative would be to penalize employers who classify workers as independent contractors.
State Representative David Niezgodski (D-South Bend) said, “When an employee is classified as an independent contractor, their employers are able to avoid paying normal payrolls. This means they don’t have to pay Social Security or Medicare, overtime, worker’s compensation and unemployment insurance.” He went on to say, “Employers are using this tactic to avoid their legal obligations, just to save themselves money.”
“As a result, many of these workers are forced to pay all of these taxes on their own through a salary that is already low to begin with,” Niezgodski noted. “It also invites the possibility that out-of-state workers and illegal aliens can take jobs away from Hoosiers. This isn’t a roadmap to success. It’s a recipe for failure.”
Independent contractor misclassification legislation was introduced in Indiana last session but never made it out of committee. The MCAA will pay close attention to any possible legislation this session and work to gain a similar result.
Motor Carrier Exemption
MCAA continues to work with the Motor Carrier Exemption coalition to restore the overtime exemption under the Fair Labor Standards Act. The Motor Carrier Exemption provision was not ultimately included in House passed Department of Transportation technical corrections legislation. There will hopefully be a renewed effort on behalf of the coalition once the United States Congress returns to session after the winter recess. It still remains important for MCAA members, especially those operating in Minnesota, to contact Congressman James Oberstar (D- Minnesota) at 202-225-6211 and urge him to restore the exemption.
New Internal Revenue Service Forms
The new I-9 Employee Eligibility form is now in effect. The federal government requires all companies to complete the form for every employee within the first three days of employment and to retain that form for either one year after termination of employment or three years, whichever is longer. Current employees do not need to complete this form unless re-verification is required. There is a fine of up to $1,100 for non-compliance.
The Form 8919, Uncollected Social Security and Medicare Tax on Wages, has been developed for employees who feel they have been misclassified as independent contractors by an employer. The form will be used to figure and report the employee’s share of uncollected social security and Medicare taxes due on their compensation.
Maryland Tax on Computer Services
The Maryland General Assembly in its recent Special Session, passed Senate Bill 2, which includes a special 6% tax on the purchase of computer services. “Computer services” is broadly defined to include web design, computer facilities management, custom computer programming, data processing, storage & recovery, as well as hardware or software installation, maintenance & repair. It appears that even when such computer services are purchases from out-of-state providers, Maryland companies will still be required to report the taxes they owe and pay this tax.
This tax has a direct impact on many courier companies since they are mostly small businesses without the resources to employ in-house computer or software engineers. Companies in the courier industry also rely heavily upon computer software to communicate with drivers and customers. Computer software also enables customers to track the location of their parcels and the progress of their deliveries. This tax will have a negative affect on small businesses ability to continue to compete with larger companies such as FedEx and UPS.
MCAA will work with our courier members in the state as well as the Maryland Chamber of Commerce as they work for the repeal of this tax.
STATE LEGISLATION (NEW)
Indiana House Bill 1269
Sponsored by Representative Niezgodski
This legislation aims to address employee classification in the construction industry. It provides that an individual performing services for a contractor is considered to be an employee of the contractor. The exceptions for this provision include meeting the requirements of the ABC test or meeting the requirements of being a legitimate sole proprietor or partnership. The Department of Labor (DOL) has authority to investigate the employment relationship between an individual and a contractor. Provides that a contractor or an agent of the contractor that intentionally fails to properly classify an individual as an employee commits a Class C misdemeanor, and that the second or subsequent intentional violation within five years is a Class D felony. This bill was introduced and referred to the House Committee on Labor and Employment on January 14, 2008.
http://www.multistate.com/IndependentContractors.nsf/billdetail?openform&billid=IN+H.B.+1269
Maryland House Bill 70
Sponsored by Representative Glenn
Prohibits construction industry employers from failing to properly classify an individual as an employee with the intent to evade payment of wages, benefits, taxes, or other contributions as required under certain provisions of State law. An individual who has not been properly classified as an employee may bring civil action for damages against the employers. The Commissioner can issue a stop-work order on any construction industry employer who fails to properly classify its workers. This bill was introduced and referred to the House Committee on Economic Matters on January 9, 2008.
http://www.multistate.com/IndependentContractors.nsf/billdetail?openform&billid=MD+H.B.+70
Missouri Senate Bill 929
Sponsored by Senator Green
This legislation aims to bar employers from misclassifying employees as independent contractors. The Department of Labor and Industrial Relations shall establish a complaint form to receive complaints about alleged misclassification of workers. If the department determines, after conducting a review, that an employer appears to have misclassified a worker, it shall forward its determination along with supporting documentation to the Attorney General. If a court determines that an employer has knowingly misclassified a worker, the court shall award penalties up to $100,000 to the Missouri worker protection fund. This bill was introduced on January 10, 2008.
http://www.senate.mo.gov/08info/pdf-bill/intro/SB929.pdf
Vermont House Bill 568
Sponsored by Representative Marcotte
Alters language in Title 21 modifying the treatment of independent contractors in the field of workers' compensation and unemployment insurance. This legislation gives conditions that a worker must demonstrate in order to be classified as an independent contractor by the employer. This bill was referred to the House Committee on Commerce on January 11, 2008.
http://www.multistate.com/IndependentContractors.nsf/billdetail?openform&billid=VT+H.B.+568
FEDERAL LEGISLATION
United States Senate Bill 2044
Sponsored by Senator Obama
The bill provides changes to the current classification of employees and independent contractors. It provides negatives changes to the IRS safe harbor provision as well as gives the Department of Labor authority to increase enforcement activities. Also encourages information sharing between the Department of Labor, Department of the Treasury, and state agencies. A number of influential Senate Democrats have cosponsored this harmful legislation. The bill was read twice and referred to the Committee on Finance on September 12, 2007.
http://thomas.loc.gov/cgi-bin/query/z?c110:S.2044:
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