Clarify the Definition Of Independent Contractor and Preserve Legitimate Independent Contractor Relationships
- Independent contractors serve a vital function in our economy by providing specialized skills to businesses that utilize them. They are often used in the construction industry, where short-term and fluctuating needs are common. An independent contractor relationship can offer advantages to the worker as well, such as flexibility, autonomy, and tax benefits. Classification of a worker as an independent contractor or an employee is critical to the determination of tax and withholding responsibilities of the company, and misclassification can lead to severe penalties. Unfortunately, the classification standards are determined by a 20-factor test that hinges on the question of control of the worker and is difficult to understand.
- Preserve an Employer’s Right to Use Independent Contractors. Legitimate independent contractor relationships exist, particularly in the construction industry. AGC firmly believes that the proper use of independent contractors should not be jeopardized in exchange for punishing those employers that abuse the system.
- Clarify the Definition of Independent Contractor. The standards for classification should be clarified and simplified to make compliance easier. Promoting compliance protects companies with legitimate aims from harsh fines and from retrospective liability for employment taxes and employee benefits. It also renders enforcement more consistent, thereby helping to protect companies that bear the higher costs of complying with the law from being at a competitive disadvantage to companies that knowingly violate the law.
- Provide an Employer Safe Harbor. Congress provided special relief from pre-1979 employment tax liabilities and a safe harbor for future liabilities in Section 530 of the Revenue Act of 1978. Section 530 essentially prohibits the IRS from challenging an employer's treatment of a worker as an independent contractor for employment tax purposes if the employer had a reasonable basis for such treatment. This provision is also unclear and is inconsistently applied. AGC supports clarification of the safe harbor and opposes attempts to repeal it.