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Mr. KERRY. Mr. President, today I am introducing the Fair Playing Field Act of 2010 to provide a fairer playing field to America's businesses and workers. It will ensure workers are afforded protections already in the law, such as workers' compensation, Social Security, Medicare, payment of overtime, unemployment compensation, and the minimum wage. It will also ensure help
employers who play by the rules are not forced to compete against those businesses that don't. This legislation is identical to legislation being introduced in the House of Representatives by Representative McDermott. Senators Murray, Gillibrand, Sherrod Brown, Franken, Akaka, Schumer, and Leahy are cosponsors.
Under current law, employers are required to take certain actions on behalf of their employees including withholding income taxes, paying Social Security and Medicare taxes, paying for unemployment insurance, and providing a safe and nondiscriminatory workplace. Employers are not required to undertake these obligations for independent contractors. Too often, workers are misclassified by businesses looking to avoid paying taxes. These businesses receive an unfair advantage over businesses that play by the rules.
The Internal Revenue Service, IRS, currently uses a common law test to determine whether a worker is an employee or independent contractor. Unfortunately, a loophole exists which allows a business to escape liability for misclassifying employees as independent contractors. Furthermore, there is statutory prohibition on the IRS providing guidance through regulation on employee classification.
Federal and State revenue is lost when businesses misclassify their workers as independent contractors. A study estimated that, between 1996 and 2004, $34.7 billion of Federal tax revenues went uncollected due to the misclassification of workers and the tax loopholes that allow it. Recently, GAO and Treasury Inspector General reports have cited misclassification as posing significant concerns for workers, their employers, and government revenue.
Section 530 of the Revenue Act of 1978 generally allows taxpayers to treat a worker as not being an employee for employment tax purposes, regardless of the worker's actual status under the common law test, unless the taxpayer has no reasonable basis for such treatment or fails to meet certain requirements. Section 530 is commonly referred to as a ``safe harbor.'' This provision was initially enacted in 1978 for a year to give Congress time to resolve these complex issues. In 1982, the safe harbor was made permanent. In addition, section 530 prevents the IRS from requiring an employer afforded a safe harbor to reclassify a worker prospectively.
The Fair Playing Field Act of 2010 ends the moratorium on IRS guidance addressing the worker classification issue. The legislation requires the Secretary of Treasury to issue prospective guidance clarifying the employment status of individuals for Federal employment tax purposes. The effective date for the provision of authority to issue guidance is the date of enactment.
Under the Fair Playing Field Act of 2010, the section 530 safe harbor will continue to be available to employers with respect to the treatment of an individual for Federal employment tax purposes until the individual has a reclassification date. An individual's ``reclassification date'' is the earlier of the following two dates: the first day of the first calendar quarter beginning more than 180 days after the date of an ``employee classification determination'' with respect to such individual; or the effective date of the ``first application final regulation'' issued by the Secretary of the Treasury with respect to such individual. An ``employee classification determination'' with respect to an individual is a determination by the Secretary of the Treasury, in connection with an audit of the taxpayer that begins after the date that is one year after the date of enactment, that a class of individuals holding positions with the taxpayer that are substantially similar to the position held by the individual are employees.
I urge my colleagues to cosponsor the Fair Playing Field Act of 2010 which will provide valuable protections to workers who are erroneously misclassified and help combat the underground economy.
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