February 2, 2010

NLA Members,

In the rollout of the President's FY ‘11 budget yesterday, there was a proposal to re-classify workers currently designated as independent contractors, making them employees for the purposes of benefits and workplace protections.  This issue has been of some debate in our industry and I would refer you to page 19 in the primer prepared by our law firm Keller and Heckman on the issue of independent contractors in the ground transportation industry (you can read the primer in its entirety on www.Limo.org ...please see the last "News" item on the home page). 

It's too early in the legislative process to handicap this proposal's chances for passage.  Many small and large business interests will strongly oppose.  The NLA and its legislative team will be monitoring the issue and taking appropriate actions to advocate for our industry.  The following article from Tuesday's Congress Daily detailing the issue is attached for your review.

As always, consulting your own attorney on matters like this is recommended if you have questions or concerns for your company.

Diane Forgy, NLA President

From Congress Daily
"Blueprint Resurrects Obama Plan To Reclassify Contractors"

Tuesday, Feb. 2, 2010

"President Obama's budget plan would resurrect a measure he championed as
an Illinois senator that could force companies to pay more for employee
benefits and send more tax revenues to federal coffers.

"The measure is a two-for-one legislative coup, both for Obama's union
supporters and for deficit reduction. But critics argue it could stifle
an economic recovery by denying opportunities for millions of
self-employed workers, from bicycle messengers to freelance journalists
to computer technical support.

"The FY11 budget blueprint would raise $7.3 billion in revenues through a
rewrite of the 1978 law that protects the status of firms employing
independent contractors. The joint proposal from the Labor and Treasury
departments would enable the IRS to require "reclassification" of
workers currently designated as contractors, making them regular
employees for the purposes of benefits and workplace protections. It
also means firms would be responsible for payroll and unemployment taxes
on wages, which they can avoid with independent contractors.

"'It's a matter of equity and justice, really getting people paying the
taxes they should be responsible for and giving people the benefits that
they're entitled to,' said House Ways and Means Income Security
Subcommittee Chairman Jim McDermott, D-Wash. He has introduced
legislation on the issue several times, most recently in July. "It's an
issue that's been a long time coming," McDermott said.

"McDermott already had some powerful support. House Education and Labor
Chairman George Miller and Ways and Means Select Revenue Measures
Subcommittee Chairman Richard Neal, D-Mass., are co-sponsors. The Senate
version's lead author is Sen. John Kerry, D-Mass. Majority Whip Durbin
was Obama's original co-sponsor in 2007.

"'Things like this sometimes have to hang around for a while for people
to think about them and begin to see, "Well, this doesn't make sense,"'
McDermott said in an interview. He plans to raise the proposal with Ways
and Means Chairman Charles Rangel when he returns to Washington today.

"According to a Treasury summary, the plan would permit the IRS to
require reclassification of workers based on a set of guidelines they
would develop. Employers would be required to give notice to new
independent contractors of how they will be classified, and of the tax,
workers' compensation, wage and hour implications.

"Contractors paid more than $600 a year by a service recipient could
require their employer to withhold taxes for them so the contractor
would not have the added compliance cost.

"Firms employing contractors exempted under current law would not be
affected until a year after enactment, while those with written
contracts laying out their classification would get a two-year reprieve.
To enforce the measure, the budget includes $25 million for the Labor
Department to target misclassification with 100 additional personnel.

"'I'm pleased the budget addresses this issue head-on,' Kerry said in a
statement. 'The best way to level the playing field for America's
workers is by ensuring that they get the protections they deserve and
make an honest day's pay for an honest day's work.'

"The proposal is backed by unions including the AFL-CIO, Change to Win
and the International Brotherhood of Teamsters. AFL-CIO President
Richard Trumka said in a statement Monday that 'the administration "gets
it" that new jobs must be good jobs,' citing 'a new initiative to crack
down on businesses that misclassify their employees as independent
contractors in order to evade their responsibilities as employers.'

"The use of independent contractors is pervasive in industries such as
construction and home-building, as well as increasingly among high-tech
firms. FedEx Corp., the giant express delivery carrier, has been
embroiled in legal disputes over its contract drivers for years.
Industry groups like the Associated Builders and Contractors, although
they declined comment for this story, have opposed similar efforts in
the past.

"Advocates for small businesses and the self-employed have been among the
loudest critics. National Federation of Independent Business tax counsel
Bill Rys said the law surrounding the use of contractors could use a
little clarity. However, the administration proposal would empower the
IRS to make the determination while taking away defenses firms have if
they're audited, he said.

"'You're creating a lot of uncertainty here for business owners about
what the rules will look like in terms of who is and who isn't an
independent contractor,' said Rys. 'You've got a lot of workers who find
themselves out of work who are able to make a certain amount of income
because they are doing contract work. So if these rules become too
tight, you may be taking away an opportunity these workers have to start
their own business. ... I think right now is an especially bad time to
try to tackle something like this.'

"The National Association for the Self-Employed estimates there are more
than 22 million self-employed businesses operating in the United States,
representing 78 percent of small businesses, said executive director
Kristie Arslan. She said the measure would force tiny businesses -- most
of her members have 10 or fewer employees -- into higher costs and
burdensome paperwork that they don't have the capacity for, resulting in
fewer hires.

"'The goal is supposed to be creating jobs, but I think that this is
going to basically put a ton of people out of work,' Arslan said. 'What
you should be doing is providing a favorable environment for the
self-employed to flourish, and what this proposal does is just add to
their regulatory burdens, on both sides -- for anyone who wants to use a
contractor and for those who enter self-employment and plan to contract
out to other companies.'

"McDermott said the goal was exactly the opposite.

"'We're not trying to drive businesses into the ground or lose jobs.
There'll be all kinds of yelling and screaming about things like that,
but that really is not true,' he said. 'Almost every matter of equity in
the workplace has been considered the end of the free enterprise system
as we know it. Whether you're talking about workers' comp or
unemployment insurance or the eight-hour workday ... people always like
the status quo, but in fact this is not fair.'"

by Peter Cohn