Most people would agree that Congress has done very little during the last two years as big-ticket items such as immigration reform, debt reduction and renewable energy remain on the table. Despite the lack of legislative movement, however, the regulatory agencies have been working overtime turning out new and costly regulations that go unnoticed on the evening news, but have a major impact on small businesses, such as those found throughout Maine, that employ a majority of Americans.
Small business owners, including myself, take the risk of starting a company because we believe in the American dream. In recent years, however, the Department of Labor has taken aim at these entrepreneurial Americans by enacting regulations that would reclassifying independent contractors as employees, affecting most small business owners, from accountants and engineers to consultants and contractors.
What’s the issue? Many Mainers work as independent contractors because it affords them independence and flexibility. Or, in my case, I wanted to pursue a strategy that allowed me the flexibility to work on several projects and bring on consultants based on the need for each project. Chances are good that your hair stylist, your accountant, the person delivering your packages or the folks who make those political ads you see are independent contractors, who pay their own taxes, health insurance and FICA payments. Many real estate agents, writers and business consultants are also independent contractors. And many startups hire independent contractors to help them launch their businesses.
In recent years, the Department of Labor has used audit-type surveys to reclassify independent contractors as employees. These classifications, however, often are at odds with the Internal Revenue Service’s classification tests. Add to this patchwork of regulations the fact that each state also has slightly different tests to classify employees.This uncertainty can have a chilling effect on small business owners who fear that hiring contractors will mean complicated paperwork that varies from agency to agency and state to state. If they do hire independent contractors, they run the risk of a federal audit. The onus is particularly heavy on start-ups and smaller businesses that don’t have the assets to hire full-time workers.
It is a reality that some people cheat on their taxes and some businesses treat their employees unfairly. Government studies, however, show that independent contractors comply with tax laws at virtually the same rate as traditional employees.
A recent report by experts at Columbia University recommended that the federal government develop a single definition of an independent contractor. “Such an effort to streamline and unify guidelines for determining whether a worker is an independent contractor or employee would help businesses to make better classification decisions,” the study reads. “It would then allow these businesses to focus on other important strategic decisions and operations, allowing them the opportunity to better perform competitively.”Not only do these recommendations make sense, but they have the right goal: increasing competitiveness and growth without hurting businesses.
As we continue to climb our way out of our economic slump, it’s disappointing that some bureaucrats continue their efforts to take away the rights of independent contractors to choose a financial path and lifestyle that works best for them and their families. Fortunately, organizations like the It’s My Business coalition are raising awareness about the threats facing independent contractors and are working to keep additional legislative and regulatory challenges at bay — both at a national level and in states like ours.
Defending the rights of contractors here in Maine and across the country is needed now more than ever. We simply cannot afford to stand by idly and watch Washington continue its attack on the small businesses that support our state’s economy.