June 15, 2010
The Honorable Tom Harkin, Chairman
The Honorable Michael B. Enzi, Ranking Member
Committee on Health, Education, Labor & Pensions
United States Senate
428 Dirksen Senate Office Building
Washington, D.C. 20510
Dear Chairman Harkin and Ranking Member Enzi:
Micro-businesses, those with fewer than ten employees, have long been pillars of innovation and job creation in our nation, fueling much of what is great about America. During this uncertain economic time, the role of these vital businesses has become even more important. Furthermore, with big business downsizing and many industries in flux, a large number of citizens find themselves in a position in which the only viable avenue of employment is self-employment.
Our tax code is often the biggest hurdle faced by entrepreneurs due to its complexity and paperwork burden. Micro-businesses and the self-employed are particularly disadvantaged since many of these entrepreneurs handle their accounting and tax preparation on their own. Worker classification regulations are a prime example of an area of the code causing consternation amongst business owners.
Of the 23 million self-employed Americans, a large number are independent contractors and a significant number of micro-businesses utilize contractors for services within their business. Upon review of the Employer Misclassification Prevention Act (S. 3254), the National Association for the Self-Employed (NASE) is concerned that this legislation’s approach to worker classification will negatively impact our nation’s smallest businesses.
The core issues plaguing worker classification stem from the fact that classification of an individual into an employee or an independent contractor is subjective under the tax code. The IRS has a complicated 20-point checklist that can be used as a guideline in determining whether or not an individual is an employee or an independent contractor. Yet, using this checklist does not guarantee that a person is correctly classified. Other IRS materials published to assist in classification are equally convoluted. NASE members have indicated that when utilizing the IRS’s tax assistance help line on this issue, they have received different answers from different agents on this same issue. A large part of the problem is that there is no one, single, homogenous definition of the term "employee." Thus, there is no clear and concise manner for a self-employed individual or micro-business owner to easily determine when an individual should be classified as an independent contractor or an employee.
The Employer Misclassification Prevention Act does not address this central problem of classification rules. Rather the legislation focuses on increased enforcement and audits, instead of simplifying regulations which would lead to better compliance. Furthermore, the bill will increase accounting costs and the paper load on small businesses.
We urge you to oppose the Employer Misclassification Prevention Act (S.3254) due to the harmful impact it will have on the small business community. This legislation will ultimately create a disincentive for businesses and consumers to utilize the services of independent contractors, hobbling many entrepreneurs in this challenging economic climate.
The NASE strongly believes that our policymakers should be focused on drafting legislation that removes and/or simplifies regulatory barriers on our nation’s smallest businesses and prospective entrepreneurs, freeing up both their time and money to start, manage and grow their business; a business that enables them to provide for their family and contribute to their local community.
If you have any questions or comments, please contact Kristie Arslan, NASE’s executive director, via phone at 202-466-2100 or e-mail at email@example.com.
Thank you for your consideration.
The Honorable Christopher Dodd
The Honorable Barbara A. Mikulski
The Honorable Jeff Bingaman
The Honorable Patty Murray
The Honorable Jack Reed
The Honorable Bernard Sanders
The Honorable Sherrod Brown
The Honorable Robert P. Casey, Jr.
The Honorable Kay Hagan
The Honorable Jeff Merkley
The Honorable Al Franken
The Honorable Michael Bennet
The Honorable Judd Gregg
The Honorable Lamar Alexander
The Honorable Richard Burr
The Honorable Johnny Isakson
The Honorable John McCain
The Honorable Orrin G. Hatch
The Honorable Lisa Murkowski
The Honorable Tom Coburn
The Honorable Pat Roberts