IRS Summertime Tax Tip 2009-20 has the top ten things every business owner should know about hiring people as independent contractors versus hiring them as employeesThe warning came in the form of a “tax tip” from the IRS. Its target is the small business owner. ”Whether you hire people as independent contractors or as employees will impact how much taxes you pay and the amount of taxes you withhold from their paychecks. Additionally, it will affect how much additional cost your business must bear, what documents and information they must provide to you, and what tax documents you must give to them”.

Before you run out and hire a contractor stop at the IRS web page and pick up your free “get out of hot water” card.  Stop by and download 10 tips for keeping you on the right track and the IRS at bay. Other must see items like the tax videos  and employer guides are available for the taking.

After two long years of investigating tax cheats the state of Connecticut put the hammer down on companies scamming the payroll taxes and workers’ comp system by misclassifying employees as independent contractors. A closer look at the construction industry revealed worker misclassification and tax fraud are just the tip of the iceberg. Other criminal offenses include worker exploitation, hiring undocumented workers and identity theft to name a few all in the name of greed.  How wide spread is the problem in Connecticut? A team of state labor department employees issued 220 stop work orders during the past 22 months, a rate that far exceeds New York and Massachusetts.

Worker misclassification has plagued our nation for years and the tax cheats appear to be winning. Not so fast.  States like California, New York, New Jersey and Massachusetts state authorities have been winning the war for quite some time. Joining the ranks is Delaware who became the latest state to impose stiff penalties on construction industry employers who improperly classify employees as independent contractors. Enforcement programs or “feet on the street”, a  task force comprised of state and federal agents are how these states are shutting down illegal operators.

The payoff? In New York, authorities recovered more than $4.8 million in unemployment taxes since September 2007, issued more than $1 million in unemployment insurance fraud penalties, and more than $1.1 million in workers’ compensation fines and penalties. In Massachusetts, authorities recovered $1.4 million between fines, unpaid wages and tax assessments.

At a time when the retail industry is losing its choke hold on the average fashonista/shopaholic aka the American consumer trendsetter H&M workers received a pay hike instead of a pink slip. This news is a refreshing change from the regular reports of economic doom and gloom making headlines every evening.  However the news of a pay hike does not come without a hitch. 

Last month Union leaders negotiated wage increases and other benefits for more than 1,000 workers at H&M clothing stores in Manhattan. The package H&M workers received comes complete with a guaranteed 3 percent pay increase the first year, wage negotiations the second and third year and a provision for extra, merit-based increases each year. On top of that the contract calls for a union representative on site every day to remind employers it’s a new era. The Union is hailing this victory as an example of the power of collective bargaining. Retailers won’t be on this celebratory gathering attendee list I guarantee it!

The win comes at a time when Congress and President Obama are under tremendous pressure to back the proposed Employee Free Choice Act (EFCA) legislation. If passed union representatives have vowed to increase its membership in the U.S. by 20 percent each year.

The H&M uion win is clearly just the shot in the arm union leaders needed to encourage all workers to hang on. Just when it looked as if the EFCA bill was about to die on the vine the union showed up and watered it… 

The bill is designed to release the strangle hold the National Labor Relations has on the voting process and remove employer oversight of the process. Goal of the bill is to create a more efficient system where employees are free to form, join, and participate without reprisal from an employer.

If  it passes employers will need to know and adhere to the new rules of the Union game. Under the new law, workers would be able to decide whether to hold a secret ballot vote on union formation after a majority of employees have signed union authorization cards, or to have the union certified based on the cards alone. Under the current rules, employers have the power to make that decision. This bill is organized labor’s number one legislative priority, and heavily opposed by employers in specific industries in the business world.

Union officials are prepared to spend millions of dollars and countless hours to ensure the bill becomes law. Applying a bit of pressure on Congress and with the support of President Obama it is likely to sail through sooner rather than later this year. Although many observers predict Obama’s focus is on the economic crisis delaying action on the bill, some say that’s simply wishful thinking.

The legislative wheel turns very slowly and which of the remaining labor bills will become law is anyone’s guess.  President Obama must make good on a few campaign promises and soon.  Of the remaining labor bills awaiting his signature most likely to pass this year is the EFCA. Passage of the bill will satisfy the Union by adding more than 1 million new members to its rolls each year.

Strong opinions of naysayers like Lynn Woolsey a representative of California who is quick to shift the entire blame to the employer and are a constant in the movement for change  “The use of contract workers gives the employer a great advantage over the workers, says Woolsey. “We need to turn that around where workers actually receive their share of benefits for the amount of benefit they bring to a company.”  In her view the current model benefits only the employer and the worker is left to fend for themselves. The piece she doesn’t understand is the employer is not always in the driver’s seat and the worker often calls all the shots. Traditional employment arrangements are not high on a contracted workers list and those on the independent contractor track run from full time employment. Semi-retired or retired baby boomers and other one person shows want the flexibility to work when they want. If left up to Woolsey and other supporters of the death of the freelancer model the axe would fall tomorrow. Groups like the teamsters, politicians and union representatives would fill the stands at the gallows in support of doing away with non-traditional work arrangements. But the reality folks in the end these work practices will not go quietly and disappear but stay underground where business as a freelancer is booming!

But in spite of changes in the law to address non traditional workers the wheel of change moves slowly. Although lawmakers continue to push legislative change directed at the employer with incentives like stiff fines and penalties the 300 pound guerrilla in the room continues to go unnoticed. Until law makers apply similar pressure to the contractors and hold them equally accountable and the watch dogs will continue to chase their tails. Continuance of ongoing employer scrutiny, criticism of the staffing industry who only want to help ease worker shortages and failure to apply equal pressure to the other contracting party are reasons enough to give us pause. Is this really all about helping out the worker ensuring they receive a fair shake?

Proper treatment of workers, fair pay and benefits should be offered accordingly. 

And remember it takes 2 to tango!