New Rules for Independent Contractor Status Considered by States and Feds - (April 1, 2010)
Orchestras that classify musicians or staff as independent contractors should be aware of newly-emerging federal and state efforts to enforce and revise worker classification requirements. In an effort to increase payroll tax revenue (by as much as $7 billion over ten years), President Obama and Congressional leaders are proposing new rules that could effectively re-classify some current independent contractors as employees.
President Obama’s FY11 budget request for the IRS and Department of Labor would add 100 new staff positions dedicated to enforcing worker classification rules, and would create competitive grants to states to address misclassification. In addition to requesting funding from Congress, the Administration is proposing legislation that would enable the IRS to write new rules and regulations regarding classifying workers, and would change the 1978 tax law to:
- shift the burden of proof to employers to demonstrate that their employees are classified correctly, with added reporting requirements;
- revise the “safe harbor” provisions that currently protect organizations that classify workers as independent contractors from fines and penalties; and,
- make misclassification a violation of the Fair Labor Standards Act, with accompanying steeper penalties.
Implementing these changes would require legislative action by Congress. Similar proposals have been introduced in the U.S. House and Senate, but have not yet been taken up for consideration. Given the Administration’s focus on this - and the attractiveness of revenue-raisers in the context of the national budget deficit - the issue could gain traction this year. Meanwhile, the IRS and several states (including Maryland, Delaware, and Colorado) are stepping up audit and enforcement efforts under the current rules.
The League will keep you informed as the policy discussion moves ahead. In the meantime, any orchestra with questions regarding how to classify workers can consult the IRS website for guidance regarding the current rules. Note that businesses and the IRS alike agree that the current guidance for classifying workers is murky, at best. As such, any specific questions regarding classification should be addressed to qualified legal counsel.
The League is a member of the Performing Arts Alliance, a coalition of national performing arts service organizations dedicated to advocating for national policies that recognize, enhance, and foster the contributions the performing arts make to America