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‘Independent Contractor’—Another Word for Employer-Free Ride |
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New legislation would toughen penalties and crack down on employers who take away workers’ benefits and rights by misclassifying them as “independent contractors” instead of regular employees.
When workers are misclassified as independent contractors, they pay higher taxes and lose important rights, such as workers’ compensation coverage, minimum wage and overtime protections, family and medical leave and the right to organize and collectively bargain.
The problem is especially serious in the construction industry and is growing in the high-tech, communications, trucking and delivery services, janitorial services, agriculture, home health care, child care and other industries.
The bill (H.R. 6111) was introduced last week by Reps. Lynn Woolsey (D-Calif.) and Robert Andrews (D-N.J.). Says Woolsey, chair of the House Subcommittee on Workforce Protections:
Employers who misclassify their employees as independent contractors rob workers of needed pay and benefits and cost government at all levels substantial uncollected revenues. Despite, this enormous problem, the Department of Labor has failed not only to crack down on this practice by enforcing current laws, but has failed to coordinate with other agencies to address the issue.
There are more than 10 million workers classified as independent contractors and studies show a large percentage for those workers—as many as 3.4 million—are misclassified and should be regular employees. A Massachusetts study found 11.4 percent of the state’s construction workers had been misclassified as independent contractors between 2001 and 2003. And an Illinois study found that misclassification had increased by 55 percent between 2001 and 2005.
Employers gain a big advantage. They can avoid paying Social Security, Medicare and unemployment payroll taxes, as well as workers’ compensation premiums—and they may be able to exclude the workers from health and pension benefits and avoid having to withhold income taxes. With far lower worker costs, crooked employers can undercut honest employees.
By improperly categorizing employees as independent contractors, employers can avoid payroll taxes—some $34.7 billion in unpaid taxes between 1996 and 2004 as a result of the misclassification of workers, the bill’s backers say. Andrews, chairman of the Health, Employment, Labor and Pensions Subcommittee, says the bill is:
pro-employee, pro-employer and pro-taxpayer. The bill will protect employee benefits, remove incentives for employers to misclassify their workers, and ensure that bad employers don’t line their own pockets with unpaid payroll taxes.
Along with imposing stronger penalties for employers who misclassify their workers, the legislation would require employers to notify employees of their independent contractors status and give workers the right to challenge the classification. It also requires the U.S. Department of Labor to conduct targeted audits on employers in industries that frequently misclassify employees and allows the Labor Department and the Internal Revenue Service to share information.
A provision in the tax code allows employers to escape paying employment taxes when they misclassify workers as independent contractors instead of employees. Legislation in the House and Senate (H.R. 5804 and S. 2044) would eliminate that tax provision.
Earlier this year, as part of the AFL-CIO Building and Construction Trades Department’s (BCTD’s) legislative conference, hundreds of union members went to Capitol Hill to urge their lawmakers to help put an end to the independent contractor scam.
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When I hear the term “independent contractor” Fed Ex comes to mind. These rats have exploited, abused and misused workers for far too long!
Obviously Fed Ex workers need a union and that is why the Teamsters are busy trying to help bring justice through organizing and securing a collective bargaining contract!
Just in case you are unaware, I thought you might like to check out this Press Release issued:
January 11, 2008
(Washington, D.C.) - The Teamsters on Friday blasted FedEx Corp. (NYSE: FDC) for announcing plans to continue misclassifying its drivers as independent contractors although the California Supreme Court has declared workers there as employees. The company’s independent contractor model is also being challenged by the IRS.
During a late afternoon conference call Thursday with reporters, FedEx admitted that its subsidiary FedEx Ground’s independent contractor model is being probed by state tax authorities in addition to the IRS. FedEx managers would not go into any detail about the number of states looking into FedEx Ground’s business operations nor the potential sum of any state back tax liabilities.
The IRS in December challenged the classification of FedEx Ground workers, and slammed the company with a $319 million fine and penalties. Financial analysts quoted in multiple news articles have said that since the fine only covers 2002, FedEx could face additional penalties totaling over a billion dollars after the IRS completes its investigation.
During its conference call, FedEx would only say that any possible figures at this time were not “material.” FedEx Chairman Fred Smith and other managers tried to downplay the IRS audit determination as preliminary, but said the company planned a “vigorous defense.”
“In defending FedEx Ground’s indefensible and illegal contractor model, FedEx managers and Fred Smith have lost all credibility,” said Teamsters General President Jim Hoffa. “FedEx Ground already changed their model in California because they lost in the state court there. FedEx Ground’s model is being challenged in state courts, in federal courts, at the National Labor Relations Board, by the IRS and now we learn by state tax authorities. FedEx can only hope to delay judgment day. FedEx should live up to the law and acknowledge that their Ground drivers are employees in short order.”
FedEx managers repeatedly cited a 1995 agreement between FedEx Ground’s predecessor company (Roadway Package System) and the IRS and said the company was “disappointed and strongly disagree” with the recent IRS audit determination. That 1995 RPS-IRS Closing Agreement reads in part, “The Service agrees that it will not reclassify the RPS owner-operators as employees, except upon a determination after audit, that RPS has exercised control over the RPS Owner-Operators in a manner that conflicts with the 1994 Operating Agreement, Letter of Assurance and Exhibits.”
“The existence of this 1995 RPS-IRS agreement does not affirm that FedEx Ground could continue forever to use contractors as the company saw fit,” Hoffa said. “The IRS saw something in FedEx Ground practices that controlled these drivers beyond what the law allows just as the California court heard and ruled. The IRS must have gotten the real facts and they are acting to see FedEx adhere to the law. Now we have to see FedEx and the IRS fight it out.”
The full 1995 IRS-RPS Closing Agreement is available at http://www.fedexwatch.com.
Another of life’s ironies….
Somewhere in an ivory tower, legal sharks for corporate America spend days going over every law with a magnifying glass looking for the teensiest loophole they can use to escape taxes and take away benefits for working people. Working people are too busy working, taking care of their families and responsibilities to do the same thing.