A proposed bill by  Senator John Kerry (D-MA) and Rep. Jill McDermott (D-WA) would curtail the use of a federal “safe harbor” that allows businesses to treat workers as independent contractors for federal employment tax purposes.

According to the press release, the Fair Playing Field Act of 2010(pdf) (H.R. 6128, S. 3786) aims to “close a tax loophole currently allowing businesses to misclassify workers as ‘independent contractors,’ thereby creating an unfair environment for businesses that play by the rules and an unfair environment for workers,” by doing the following:

» End the moratorium on Internal Revenue Service (IRS) guidance addressing worker classification. The Secretary of Treasury would be directed to issue prospective guidance clarifying the employment status of individuals for federal employment tax purposes.

» Amend the provisions of the tax code that provide for reduced penalties for failure to deduct and withhold income taxes and the employee’s share of FICA taxes.

» Require persons who contract independent contractors on a regular and ongoing basis to provide a written statement to each independent contractor of the federal tax obligations of independent contractors, the labor and employment law protections that do not apply to independent contractors, and the right of the independent contractor to seek a status determination from the IRS.

» Require the Secretary of the Treasury to issue annual reports on worker misclassification.

The Senate bill has been referred to the Senate Finance Committee, while the House companion bill has been referred to the House Committee on Ways and Means.

What does this mean for you if the bill passes and you have independent contractors?

If you have independent contractors who provide on-going services to your business, it is imperative that you examine whether they are classified correctly.   In order for the employer to continue to benefit from the safe harbor provision, the employer must prove contractors are not performing substantially similar work to their employees. If an employer has misclassified their workers, the IRS may fine the company with heavy penalties and the worker may be entitled to back pay, overt-time pay, and benefits.

For more information on the proposed bill visit the following website: http://kerry.senate.gov/press/release/?id=cd7f5a6e-7feb-41ae-8e8f-6004669821fc.

Also, if the bill passes, we suggest you speak to your CPA or Tax Attorney on the impact of the bill to your business.

This blog post is of a general nature and is not intended to address all issues or problems that might arise in any employment related matter. Nor is it intended to be legal advice, which can only be rendered by a duly licensed attorney-at-law. Readers should consult with a lawyer if they have specific concerns that they feel are legal in nature. Neither Connect to HR or Michelle Mendoza have any liability for how this information is applied in practice or for the accuracy of this information.  This blog post is provided as an educational resource only, and Connect to HR or Michelle Mendoza shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation lost revenues or lost profits that may result from the use of this information.

Many small business employers complain that they are too busy, too small, or to congenial a working environment to formally document poor performance.  The truth is if its not in writing, it did not happen.  You, as the employer, must prove you did not violate the law.  Simply talking about bad behavior is not enough.  Writing down employment issues serves two purposes.  First, it provides the paper trail necessary to prove you have a legitimate reason for corrective action or termination.  Secondly, it holds the employee accountable for their actions.

If you want to keep the conversation with one of your poor performers low key that’s ok but make sure you follow-up after the conversation in writing. Documentation does not take a lot of time.  It’s as simple as sending an email to the problem employee or writing a simple memo that has 1 or 2 sentences about the incident, time, place, and date it occurred and corrective action.

Sample email:

From: Supervisor

Date: July 30, 2010

To: Problem Employee

Subject: Following up on our conversation

Hello John Doe,

It was good talking with you today about [x problem], and I’m glad that we were able to identify the best solution moving forward.  I expect [insert expectation of conduct or performance here]. Let me know if I can be of further assistance to you or if you have any further questions.

Sincerely,

Supervisor

Thus, the email puts a date/time stamp on a document that identifies the problem and sets forth the expectation of the employee’s solution to implement. It has the added benefit of demonstrating the sender’s willingness to work with the employee to achieve improvement.

It take less than 5 minutes to draft the follow-up correspondence which is a lot less time then spending hours, days, and weeks dealing with pending litigation and producing volumes of reports and documents to prove you did not do anything wrong.

To learn if you are currently vulnerable to costly lawsuits, and whether you have the appropriate policies and procedures in place, contact Connect to HR today and schedule a Consultation.  Send us an email to connecttohr@yahoo.com or call 408-768-1075.

THIS BLOG POST IS OF A GENERAL NATURE AND IS NOT INTENDED TO ADDRESS ALL ISSUES OR PROBLEMS THAT MIGHT ARISE IN ANY EMPLOYMENT RELATED MATTER. NOR IS IT INTENDED TO BE LEGAL ADVICE, WHICH CAN ONLY BE RENDERED BY A DULY LICENSED ATTORNEY-AT-LAW. READERS SHOULD CONSULT WITH A LAWYER IF THEY HAVE SPECIFIC CONCERNS THAT THEY FEEL ARE LEGAL IN NATURE. NEITHER CONNECT TO HR OR MICHELLE MENDOZA HAVE ANY LIABILITY FOR HOW THIS INFORMATION IS APPLIED IN PRACTICE OR FOR THE ACCURACY OF THIS INFORMATION.  THIS BLOG POST IS PROVIDED AS AN EDUCATIONAL RESOURCE ONLY, AND CONNECT TO HR OR MICHELLE MENDOZA SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION LOST REVENUES OR LOST PROFITS THAT MAY RESULT FROM THE USE OF THIS INFORMATION.

Thank you for visiting my website and blog.  I will be posting interesting information about the latest Human Resources topics that impact small businesses.  Check back often and please leave me a comment about what you want to learn.

Warmest wishes!

Michelle Mendoza, SPHR