Teamsters Support New Bill to Stop Worker Misclassification

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International Brotherhood of Teamsters

Sep 17, 2010, 02:37 ET

Legislation Introduced By Kerry, McDermott Would Close IRS Loophole

WASHINGTON, Sept. 17 /PRNewswire-USNewswire/ -- Teamsters General President Jim Hoffa today said the union supports a bill to close a tax loophole that allows employers to deprive workers of benefits and protections.

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The bill would close an IRS provision that makes it too easy for companies to misclassify workers as independent contractors.

"Workers who get treated as independent contractors aren't protected by workplace health and safety laws," Hoffa said. "Misclassified workers can't receive workers' compensation, they pay their own employment taxes and they have no legal rights to equal opportunity, family and medical leave or forming a union.

"For too long it's been too easy for irresponsible employers to break federal labor laws and steal from the American taxpayer," Hoffa said. "This bill would help put an end to that."

The legislation is sponsored by John Kerry (D-Mass.) in the Senate and by Jim McDermott (D-Wash.) in the House. The White House supports the bill, which makes sure there is a smooth transition and gives the IRS tools to enforce the new rules fairly.

By misclassifying workers as independent contractors, companies avoid withholding income taxes and paying Social Security and Medicare taxes. Each year, more than $4.7 billion in federal income and employment tax revenue is lost due to misclassification. Billions more are lost at the state level.

Companies that misclassify workers save as much as 30 percent on payroll costs, gaining an unfair advantage over their more responsible competitors.

The bill lets the IRS offer guidance on proper worker classification, something it had been prevented from doing. The bill also requires the Treasury Secretary to set guidelines on worker classification. It raises penalties on employers for failing to deduct and withhold income taxes and their employees' share of FICA taxes. Finally, it requires companies that hire independent contractors to give them a written statement of their tax liabilities and their right to seek a status determination from the IRS.

Hoffa praised the Obama administration's efforts to crack down on companies that avoid paying their fair share when local, state and federal governments are cutting services and jobs, pensions and wages because of falling tax revenue.

The IRS is undertaking a three-year effort to audit employers to identify cases of misclassification. The Obama administration has proposed a new Labor Department initiative to step up enforcement and help states that are doing a good job of going after violators.

Many states are undertaking efforts to crack down on the practice.

Founded in 1903, the International Brotherhood of Teamsters represents 1.4 million hardworking men and women in the United States, Canada and Puerto Rico.

SOURCE International Brotherhood of Teamsters