The Tighter the Grip, the Slippier They Get
Some time back, I was hopeful that we could see an inadvertent renaissance in self-employment, as firms were reluctant to bring on full-time employees in the the current business environment we now call the “new normal“. Well, as hopeful as that post was, it may not come to pass if certain members of Congress have their way.
In January, Financial Advisor Magazine warned that “Rep. Jim McDermott (D-Wash) introduced legislation that would eliminate Section 530 of the Revenue Act of 1978, the so-called safe harbor provision that lets employers classify workers as independent contractors rather than employees as long as they meet specific criteria” and that Sen. John Kerry (D-Mass) introduced his version that “aims to kill Section 530, or at least make it more difficult and costly for businesses to incorrectly classify employees as independent contractors.”
More recently, Daniel J. Aguilar of Morrison & Foerster commented that the President’s proposed 2011 fiscal year federal budget includes a $25 million “Misclassification Initiative” for the U.S. Department of Labor, intended to target employers who (intentionally or unintentionally) misclassify workers. To accomplish this, the DOL plans to hire more than 350 new employees, including 177 investigators and other enforcement staff.
Mr. Aguilar also advises that the IRS is launching its National Research Project (“NRP”), which requires the audit of approximately 6,000 employers over the next three years. It’s goal is to “examine and compile trending information” in five categories (worker classification, fringe benefits, payroll taxes, expense reimbursements, and other related payroll issues) and “will require comprehensive audits” in an effort to close an estimated $15 billion employment tax gap.
Folks, this issue is a prime example of where regulatory, employment and legal risks intersect and one that is of prime importance to small business.
Due to the uncertainty this new proposal (amongst many other new government proposals) adds to the equation, businesses will continue to “hunker down“, depressing employment and economic activity in the process, as they attempt to ride out the storm. And while there will always be pockets of the economy where the sky is clear, structural debt stresses in the U.S. and global economies not only remain, but intensify.
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In the end, however, I don’t think the heavy-handed approach will ultimately prevail, despite the best effort.
For every law that is created or “reform” enacted, there are hundreds of millions of people (some with very smart and talented attorneys) that will utilize their God-given talents to “game” the new system. And the more bone-headed and misguided the law, the more genius the response tends to be.
And it’s only a matter of time before we witness the miracle that is American ingenuity again.