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Independent Contractor Legislation

Representative Erik Paulsen (R-MN) re-introduced legislation that hopes to clarify the relationship between a business owner and independent contractor. Mr. Paulsen has worked collaboratively with interested groups to address concerns raised by small employers over the changing landscape, especially with the growth of the “freelance economy,” in recent years.

H.R. 2483, Independent Contractor Tax Fairness and Simplification Act of 2015, creates a two-part test that establishes a formal definition of who is an independent contractor. The two criteria to determine status would be: “the individual either has investment in equipment or is subject to income fluctuation” and “the individual has control of time worked and performance of services.” The legislation would also clarify a safe harbor provision of the tax code which will also help define an independent contractor.Additionally, the bill provides a new section to the Internal Revenue Code (Section 3511) which will assist businesses in making the proper classification. By adding this section, the goal of H.R. 2483 is to assist businesses with compliance and proper classification of individuals as independent contractors. In 1978, Congress enacted Section 530 of the Revenue Act of 1978 to provide a safe-harbor for businesses with respect to the employment classification of individuals. This came as a result of inconsistent employment tax audits where the definition of "employee" was unclear. Congress affirmatively acted to make the Section 530 Safe Harbor permanent in 1982. However, this issue wasn't included in tax reform in 1986 and therefore was not codified as part of the Internal Revenue Code.

The NASE has supported efforts by Mr. Paulsen in past years to clarify the relationship between business owner and employee. A coalition, led by the Customized Logistics and Delivery Association (CLDA), has worked closely to ensure that business owners have continued flexibility in hiring independent contractors but also, that independent contractors are properly classified and are aware of their rights.

The bill is under deliberation by the House Ways and Means Committee.

Katie Vlietstra is NASE’s Vice President for Government Relations and Public Affairs

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