U.S. Cracks Down on ‘Contractors’ as a Tax Dodge

Source: NY Times

Federal and state officials, many facing record budget deficits, are starting to aggressively pursue companies that try to pass off regular employees as independent contractors.

President Obama’s 2010 budget assumes that the federal crackdown will yield at least $7 billion over 10 years. More than two dozen states also have stepped up enforcement, often by enacting stricter penalties for misclassifying workers.

Many workplace experts say a growing number of companies have maneuvered to cut costs by wrongly classifying regular employees as independent contractors, though they often are given desks, phone lines and assignments just like regular employees. Moreover, the experts say, workers have become more reluctant to challenge such practices, given the tough job market.

Companies that pass off employees as independent contractors avoid paying Social Security, Medicare and unemployment insurance taxes for those workers. Companies do not withhold income taxes from contractors’ paychecks, and several studies have indicated that, on average, misclassified independent workers do not report 30 percent of their income.

One federal study concluded that employers illegally passed off 3.4 million regular workers as contractors, while the Labor Department estimates that up to 30 percent of companies misclassify employees. Ohio’s attorney general estimates that his state has 92,500 misclassified workers, which has cost the state up to $35 million a year in unemployment insurance taxes, up to $103 million in workers’ compensation premiums and up to $223 million in income tax revenue.



Read more: http://www.nytimes.com/2010/02/18/business/18workers.html?hp

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About time!

I try and point out how they are getting screwed - especially with the unemployment, but they have drunk the kool-aid.

I wonder if this has anything to do with fallout from Daschle's little "mistake?"

i wear this is a story straight out of the late '80s.

most computer consultants, myself included, worked on a 1099 basis as independent contractors (even though i was placed by a placement agency who took a cut and was effectively an employee of the client.

they cracked down on that, so computer consultants across the country became employees of the placement company and there were a series of tests they used to decide if you were REALLY an employee of the client or not (e.g., does the client assign you tasks or hours -- tasks suggests you're a consultant, hours suggests you're an employee).

i haven't worked as a consultant in a while so i guess lack of enforcement of these rules led to companies violating them.
... again.

It was all I could find. I'm not happy about it but I have to pay the bills.

I know two Republicans/Conservatives who have companies like this.

Employee exploitation is the name of the game.

For senior executives misclassifying employees would end the practice. Throw in a little work from home where these employees claim business expenses for part of their home and that futher reduces taxes paid.

not considered employees

his or her own Social Security or self-employment taxes. If not, then the employer should pay those taxes. In any event, someone should pay those taxes because sooner or later the contractor will no longer be able to work due to disability or age and the government will have to pay the person's living expenses.

Problems can also arise when someone who is wrongly characterized as an independent contractor is injured on the job. Employees are usually covered by Workers' Compensation. The question, therefore, arises regarding who should pay the medical bills, etc. if the contractor is injured.

And the contract companies have been paying foreign workers shit to take American jobs.

Anytime something like this is caught, it's always the fault of the worker. . .never the worthless employer.

Fuck these employers. Tax all profits over 10 million at 50% and all profits over 100 million at 100%.