A new analysis of the Senate tax bill by Shu-Yi Oei and Diane Ring of the Boston College School of Law suggests part would make it easier for companies to call workers contractors, not employees.
For anyone who was followed the contractor trend or has worked as one, the result likely would be less steady work, greater tax impacts on workers, a loss of benefits including healthcare insurance, and elimination of many protections provided by labor law.
Oei’s and Ring’s post deserves reading time for the nuance. The essence is the following:
- Part of the Senate tax bill parallels a bill called the NEW Gig Act of 2017 (both the Senate and House have versions.
- The NEW Gig Act provides a so-called safe harbor for companies that want to treat employees as contractors, meaning that if they do things correctly, they won’t see legal ramifications.
- Achieving the safe harbor conditions would be relatively easy.
- The language makes it relatively simple for employers to push employees into a contractor status.
- Although included in a tax bill, it has broad implications for how businesses will classify workers that are generally not in discussion or under debate.
- Once no longer employees, workers lose many protections under labor law, such as overtime pay, minimum wage, child labor restrictions, workers’ compensation, and family and medical leave.
- Health insurance requirements for the “contractors” would disappear, as might many safety and anti-discrimination regulatory requirements.
- Taxes increase, as the portion of Social Security and related taxes normally borne by the employer are the responsibility of the worker.
Although the language of the separate act has been associated with the so-called gig economy — such online platform companies as Uber, Lyft, Airbnb, Etsy, and TaskRabbit — nothing inherent in the tax legislation would keep other types of companies from using the same provisions.
The requirements to protect an employer claiming contractor relationships with workers are fairly light:
- The worker has to incur business expenses deductible under section 162 of the tax code, “a significant portion of which are not reimbursed.” For those not in business for themselves, this is a low bar. If you are independent, you will have expenses. All the employer need do is not reimburse them, pointing out that you’re in business for yourself and can deduct them on Schedule C in your taxes.
- Workers have to agree to work for a particular amount of time, achieve a specific result, or complete a defined task (and, presumably, workers who don’t agree to such provisions aren’t employed).
- Salespeople, specifically, need to work largely on commission and most of their compensation has to come from the sales of goods and services, not hours worked.
- Workers have to fulfill one of three conditions: significant investment in assets or training to do the job; non-exclusivity so they can also work for other companies; or not be treated as an employee for one year before starting to work as a contractor. The second factor, non-exclusivity, would be easy.
- There has to be a written contract between the worker and company.
Corporations have many reasons for pursuing or imposing such relationships when possible. They avoid many labor regulations, are no longer are responsible for providing health insurance and certain other benefits, can begin or end work without a continuing responsibility to pay wages, avoid various types of payroll taxes including the employer part of Social Security, and see the reductions and changes engender greater appreciation from investors, pushing up stock prices.
The detailed language also reduces the ability of the IRS to reclassify workers as employees, tempering the power of a major force that has sustained treatment of workers as as such. Treatment as contractors in this way would also make it far more difficult, if not impossible, for people, after the fact, to challenge the arrangement in court.
To quote the two authors:
Our point, rather, is that one cannot read this new tax legislation in a vacuum. If one is going to sign off on this type of legislation, one should at least be aware of what the far-reaching consequences may be in order to make a conscious determination that it’s still worth doing despite these wide-ranging non-tax risks and costs. Or, if one’s underlying normative goal is to harness tax reform in order to dilute worker protections in pursuit of business growth, one should be transparent about that too.
More Info: www.forbes.com
Categories: Money Matters