U.S. Cracks Down on ‘Contractors’ as a Tax Dodge

[groovedaddy]

Federal and state officials, many facing record budget deficits, are starting to aggressively pursue companies that try to pass off regular employees as independent contractors.

President Obama’s 2010 budget assumes that the federal crackdown will yield at least $7 billion over 10 years. More than two dozen states also have stepped up enforcement, often by enacting stricter penalties for misclassifying workers.

Many workplace experts say a growing number of companies have maneuvered to cut costs by wrongly classifying regular employees as independent contractors, though they often are given desks, phone lines and assignments just like regular employees. Moreover, the experts say, workers have become more reluctant to challenge such practices, given the tough job market.

Companies that pass off employees as independent contractors avoid paying Social Security, Medicare and unemployment insurance taxes for those workers. Companies do not withhold income taxes from contractors’ paychecks, and several studies have indicated that, on average, misclassified independent workers do not report 30 percent of their income.

http://www.nytimes.com/2010/02/18/business/18workers.html?th&emc=th

[YOY]

1. I've seen that. Usually with smaller companies though.

My wife had a job offer (very part time) but she would have to be 1099. She called them back and told them that she did not own a company. They did.

It's a cheapass trick.

[Political Heretic]

3. Nope. This is Hewlett-Packards PRIMARY way of doing business.

Having worked there for six years, I can tell you that the "contract employee" designation is a complete tax-evasion scam.

It's one thing to have contractors doing work completely separate from work any HP employee is doing. But HP replaces HP engineers with contract engineers - from Manpower Professional, Wipro, Adecco and the like. They do the EXACT same work as HP engineers. They report to HP managers. The contract companies claim they don't. But trust me - I was there. They do.

The get paid half as much, get next to no benefits on their own and are denied access to HP employee benefits or resources.

Several years ago I was involved with the class-action lawsuit against HP that briefly made news. Our attorney's eventually dropped the suit because we all signed papers when we started our jobs (I didn't even realized I ever signed something like this) that said we basically waived any right to sue HP about anything.)

But the fact remains that they are daily violating employment laws - laws that took effect after the microsoft contract worker lawsuit was successful.

[sinkingfeeling]

2. This is part of Section 1706 that Mr. Stack raged against back in the early '90s.

[Political Heretic]

4. No its not.

Well it may be part of the same section of tax code, I don't know. But what this is talking about is going after Employers who hire contractors so that they don't have to pay actual wages and benefits - then they do the same work sitting right beside company engineers and are treated like employees of the company when it comes to work expectations - but they get none of the benefits or wages of a full company employee.

It's a worker ripoff. And stricter enforcement means doing much more through investigations of complaints filed and looking into employers - not workers.