Home-based independent agents, host agencies and supplies and agency consortia may face a critical challenge if the current 111th Congress proposes new legislation on worker classification— whether individual workers are treated as independent contractors or as employees by the IRS and the U.S. Department of Labor.
“ASTA is monitoring this closely and our expectation is that the new Congress will introduce a new bill that – depending on its language and provisions – could have a devastating impact on the travel industry,” Colin Tooze, ASTA’s vice president of government affairs said in an interview with Travel Agent.
Tooze notes that in the 110th Congress, Senators Durbin (D-IL) and then Senator and now President Obama introduced a bill that would apply greater scrutiny to the question of worker classification. The objective was to address the “tax gap” caused by the improper classification of workers for tax reporting purposes.
“Many in the small business community are concerned that this legislation – or a version of it - could undo longstanding protections for businesses that rely on the services of independent contractors,” Tooze said.
While this 2007 legislation stalled in 2008 due to presidential opposition, ASTA is closely monitoring this proposal. He also notes reports that it is likely to pass in 2009. ASTA’s concern is focused on fears that such a bill would impose new compliance costs on small businesses and others who rely upon the services of independent contractors for business services.
"The passage of new worker-classification legislation could have a devastating impact on agencies, host agencies and the independent agents as well as suppliers who have invested in the home based independent distribution system," Tooze said. "If such a bill is introduced, a cooperative, multi-industry effort will have to be made to try to defeat or change the bill. Our fear is that any eventual legislation will go too far in the direction of reclassifying workers and imposing new costs on small businesses."
Key provisions of the Independent Contractor Proper Classification Act of 2007 included:
“Amends the Revenue Act of 1978 to: (1) require employers to treat workers misclassified as independent contractors as employees for employment tax purposes upon a determination of misclassification by the Secretary of the Treasury; (2) repeal the ban on Treasury regulations or revenue rulings on employee/independent contractor classifications; and (3) eliminate the defense of industry practice as a justification for misclassifying workers as independent contractors.”
“Requires the Secretary to establish a procedure for workers to petition for a determination of their status as employees or independent contractors. Prohibits employers from retaliating against workers filing a petition. Requires the Secretary to take certain actions upon determining that an employee has been misclassified as an independent contractor, including informing the Department of Labor of such misclassification.”
“Requires employers to: (1) notify their independent contractors of their federal tax obligations, the labor and employment protections inapplicable to independent contractors, and their right to seek a status determination from the IRS; and (2) maintain for three years a list of their independent contractors, including names and tax identification numbers.”
Tooze, who joined ASTA last year, said ASTA is part of a coalition of business groups that is working to stop this legislation.
Another dimension of the problem is also clear at the state level. "Various state governments, desperate for new sources of revenue, have indicated that they will seek to address the worker classification issue on their own without waiting for a federal solution."
Tooze notes the cost of such legislation to agencies - especially combating punitive legislation and complying with overlapping or contradictory laws across multiple states will be high. Other unknown factors that might influence the timing of federal legislation are health care reform, the state of the economy, and the consideration of union-supported "Card Check" legislation.
Tooze urges agents, agencies and hosts to inform him if they hear any reports of pending legislation in their state that would address the worker classification issue. He also notes that ASTA has prepared guidelines to help ASTA members in their dealings with independent contractors.