Tide turning on misclassification

Words we like to hear: "The tide of policy has been pushing against independent contractors for several years now."

This from a lawyer. Russ Hollrah, who is also the executive director of the Coalition to Preserve Independent Contractor Status, was interviewed by Forest Operations Review, a publication of the Forest Resources Association. Here's what Hollrah had to say:

During the past several years, many individual states have enacted laws that make it more difficult to establish individuals as independent contractors and that impose harsh penalties on companies that are found to have misclassified service providers. During the same period, the U.S. Congress enacted a new federal income-tax withholding regime that will apply to government contractors. The State of California, which is always worth watching, has come very close on a number of occasions to enacting a law that would require the withholding of California income tax from payments made to all independent contractors doing business in the state.

Luis Ceja, Teamster port organizer

Meanwhile, the U.S. Department of Labor has significantly intensified its enforcement efforts aimed at companies that misclassify workers as independent contractors, and this February the Internal Revenue Service commenced its National Research Program, through which it will conduct employment-tax audits of 6,000 U.S. companies over a three-year period.

What does all this activity mean in the real world? In my view, it is having an impact. Recent statistics suggest that these government policies are beginning to cause companies that do business with independent contractors to reduce their exposure to this growing regulatory risk by doing less business with independent contractors.

So the number of independent contractors is shrinking. The most recent Bureau of Labor Statistics data indicate that the number of self-employed individuals in the U.S. plummeted to a 12-month low of 8.68 million in August 2010, which is down from 8.78 million in the prior month of July 2010, and down from 9.03 million a year ago in August 2009.

It's nice to hear someone from the other side acknowledge that we're having some success in eliminating this scam that robs people of their wages and benefits, and communities of needed tax revenue. The bad news: according to Hollrah, the incoming Congress "would be a significant improvement over the current congress, which is certainly the most hostile toward independent contractor status of any in my lifetime."