WASHINGTON, D.C. – This week, U.S. Senators Patty Murray (D-WA), Barack Obama (D-IL), Dick Durbin (D-IL), and Edward M. Kennedy (D-MA) introduced The Independent Contractor Proper Classification Act of 2007. This legislation will protect workers and taxpayers against the misclassification of employees, a problem that costs the government billions of dollars and denies thousands of Americans basic employee protections such as workers compensation and overtime pay.
The Section 530 Safe Harbor in federal tax law is a tax loophole that allows employers to classify a worker as an "independent contractor" instead of an "employee." Employers who use this loophole avoid paying employment taxes and workers compensation for their workers. As a result, misclassified workers must pay higher taxes as though they are self employed. In contrast, employers who follow the rules are forced to pay higher federal and state payroll taxes, putting them at a competitive disadvantage against employers misclassifying their workers.
The Independent Contractor Proper Classification Act of 2007 will close the Section 530 loophole. It will allow the government to collect the taxes employers owe and will address the need for more enforcement of federal tax and employment laws to identify those employers in major industries who wrongly classify their workers as independent contactors and require greater cooperation between the IRS and the Department of Labor in enforcing the law.
“Good faith employers and hard working Americans should be served by the law, not harmed by it,” said Senator Murray. “I’m pleased that this bill will level the playing field for employers and give working families access to the benefits and protections they deserve.”
“Every day, millions of Americans go to work and play by the rules, teaching our children the values of hard work and responsibility,” Senator Obama said. “And most employers treat their workers fairly, paying them a decent wage and providing the benefits they deserve. But we must fix the system to stop those few employers from breaking the rules and exploiting this tax loophole at the expense of taxpayers and our workers’ safety and security. I want to thank Senators Durbin, Kennedy, Murray and the labor community and trade associations for their support of this bill.”
“When you walk down the streets of Chicago, and in the suburbs and towns throughout Illinois, you can see construction workers hard at work - building new homes, office buildings, and roads,” said Senator Durbin. “These workers deserve their fair share from employers who are not trying to cheat the system. This bill will make important changes at the federal level that will complement the actions the State is taking to make sure employers properly classify their workers. I commend Senators Obama, Kennedy and Murray for their work on introducing this important legislation.”
“Improperly labeling workers as independent contractors is cheating of the worst kind,” Senator Kennedy said. “Companies resorting to this dishonest practice avoid paying the taxes they owe and deny their employees their legal rights, including the right to a safe workplace, the right to the minimum wage, and the right to overtime pay. I’m proud to be a sponsor of this legislation to crack down on these unscrupulous employers.”
The legislation is supported by the AFL-CIO, Change to Win, the International Brotherhood of Teamsters, business associations representing the interests of more than 200,000 construction employers, and the National Employment Law Project.