Today's New York Times (17 Feb) reports that the IRD are "starting to aggressively pursue companies that try to pass off regular employees as independent contractors". The report notes that companies are using so called independent contractors to avoid paying a range of taxes and the like including social security, Medicare and unemployment insurance. The report also states that "several studies have indicated that, on average, misclassified independent workers do not report 30 percent of their income". This enthusiasm is driven partly by budget deficits, the report notes that California’s attorney general is currently seeking $4.3 million from a construction firm and that last year he won a $13 million from two companies that had misclassified 300 janitors, cheated the state out of payroll taxes and not paid minimum wage and overtime, and partly by the appointment of a new top law enforcement official in the Labor Department.
As usual of course employers blame the uncertain state of the law for this problem - rather than the fact they are trying to get the best of two worlds. If I recall correctly Chief Judge Goddard once said something to the effect that if employers stopped trying to see how close to the wind they could sail and instead steered a safe course such problems would melt away. These problems are of course not unique to the US and are well known in NZ where the same problems exist with both tax and the avoidance of minimum employee protections. I have not followed our own IRD's moves on this matter but I did note that the Department recently appealed the decision in Penny v Commissioner of Inland Revenue. This case involved doctors providing their professional services through a trust structure to limit their tax liability - the Commissioner argued that the salaries received via the trusts were artificially law. Perhaps there is also a new enthusiasm in NZ!
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