Independent Contractors Challenge Unfavorable Tax Laws

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In my recent post, "Misclassification of Independent Contractors in IRS Crosshairs," I wrote about the fact that federal and state government agencies are cracking down on employers who hire independent contractors into positions that aren't readily distinguishable from full-time positions. The IRS clearly isn't happy about not receiving payroll taxes on these employees, and some states are even less amused.


One of those states is Maine, where employers are particularly antsy about hiring independent contractors for fear of running afoul of Maine's stringent employment tax laws. Joe Kumiszcza, executive director of TechMaine, a trade association of Maine IT professionals, told me last week that his organization plans to introduce a bill in the next session of the state legislature that would make those laws less onerous for contractors. Kumiszcza also noted that he's speaking with Stateside Associates, a national lobbying group, to determine that organization's preparedness to put this topic on its agenda in working on the national level and with other state legislatures.


Kumiszcza explained what TechMaine hopes to accomplish with the legislation:

In the IT sector, a lot of folks want to be independent contractors. Unfortunately, the way both state and federal governments are going after it, it makes it that much more difficult to move from gig to gig. Employers are a little wary, because they don't want to be hit with penalties and/or back taxes. That's causing some of our members to get a little concerned about where their next gig is going to be. And with the state of Maine cracking down on it, that makes it more difficult for my members to solicit new business and to bring on new talent to be able to put a project together the way they want to.

On the question of why so many IT professionals prefer to work as independent contractors rather than full-time employees, Kumiszcza said it's largely a skills issue:

You may have someone with a real high skill base in a particular vertical or technology, and they want to maintain that leading-edge knowledge base, which means that working for the same company [as opposed to moving from company to company] may not allow them to delve deeper into projects that utilize their specific skills. If they can go around to other businesses and build upon their best practices or their deep knowledge, then they continue to be leaders within that sector.

A reader who commented on my previous post on this topic explained the issue further:

As someone who's been an independent contractor and hired them for over 20 years, it's frustrating to see this issue get mangled in the media. The truth is, the vast majority of ICs are happy with their arrangements. But for some reason, this key piece of the story is missing in the countless articles on the topic.


We, this majority, are self-employed business people, not duped. We are sole proprietors, just as much as someone running a mom-and-pop store who doesn't incorporate. My primary work as an IC has been as a graphic designer and writer. I love the autonomy and other benefits of being self-employed; I have nearly zero interest in being someone's employee.


Unfortunately, the "chilling effect" of this ramped-up enforcement is no small deal. As employers [taking] a beating from the IRS become more reluctant to use ICs, where will my livelihood (and that of the millions of other legitimate ICs) go? Will I effectively be forced into employment or to expensively incorporate my business?


Furthermore, those of us in creative fields can lose the rights to our creations if we are not producing them independently; our employers hold these intellectual property rights.

For now, Kumiszcza acknowledges that companies that are in a gray area where it's unclear how a worker should be classified would be well advised to err on the side of caution and put him on the payroll. But he says there's a price to be paid for that:

That would certainly be the wisest thing to do at this time. With any state department of labor, you're guilty until proven innocent. Unfortunately what that means is there may be jobs that go undone because the right talent can't be brought on hand.

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