A familiar bill was reintroduced a few weeks ago that is aimed at putting an end to worker misclassification. The bill, H.R.3408, otherwise known as the Taxpayer Responsibility, Accountability and Consistency Act was intended to make it difficult for employers to receive protection from, what could be, a large employment tax penalty to those who incorrectly misclassify workers as an independent contractors.
We first heard of a similar bill that was introduced almost two years ago by a Senator from Illinois, Barack Obama. At that time it was entitled The Independent Contractor Proper Classification Act of 2007(S. 2044). That bill was introduced in the last session of Congress and was cleared from the books since it did not pass.
H.R.3408 like S. 2044, is looking to repeal section 530 of the Revenue Act of 1978 and replace it with a new code section. The new code would allow employers to avoid tax liability if they had a “reasonable basis” for classifying the worker as an independent contractor. The reasonable basis being:
(1) The employer classified the worker as an independent contractor based on: (i) a written determination that addresses the employment status of either the worker in question, or another individual holding a substantially similar position with the employer; or (ii) a concluded employment tax examination of the worker, or another individual holding a substantially similar position with the employer, that did not conclude that the worker should be treated as an employee; and
(2) The employer (or a predecessor) has not treated any other individual holding a substantially similar position as an employee for employment tax purposes for any period beginning after Dec. 31, 1977.

With every new law comes it’s penalties and this one is no different. Employers that misclassify employees as independent contractors would be subject to a minimum $250 penalty per incorrect tax return, up to $3,000,000 per year. The penalty imposed could be lowered if the employer’s returns are corrected in a specified period of time.
Should this bill make it’s way to the oval office, President Obama will have no problem signing off on a bill that he initiated a couple of years ago.