Business groups split over independent contractors bill
While they agree that changes need to be made, reactions from business groups to a Missouri bill to classify independent contractors have been mixed.
House Bill 2498, sponsored by Rep. Jeff Porter, R-Montgomery City, would classify self-employed contracts as workers who sign a contract with a self-identifying employer, file self-employment tax forms, and have the ability to control their prices and working hours even if the end result is determined by their employer. They should also meet other criteria related to self-employment.
The bill would exclude several categories of employers, such as transportation networks like Uber and Lyft, nonprofit organizations, government entities and federally recognized tribes.
The IRS and state agencies require companies to self-determine worker status based on many factors, including the degree of control the company has over how a worker does their job, financial relationship between employer and worker and whether there are written contracts or benefits on the table.
The IRS uses a 20-question common law test to determine worker classification, which Missouri also uses. This classification is used to determine what the employer is required to provide and withhold, as businesses must withhold and pay income, social security and health insurance taxes, and pay unemployment contributions for employees, but are generally not required to do so for independent contractors.
Porter said the loose parameters made it difficult to classify workers and sometimes led to lawsuits for alleged misclassification.
The IRS website also notes the subjectivity of its standards: “There is no ‘magic’ or set number of factors that ‘make’ a worker an employee or independent contractor and no factor is isolated to make this decision,” the site reads. “Furthermore, factors that are relevant in one situation may not be relevant in another.”
Porter said he hopes to pass a version of the bill that cements those standards across the state while meeting federal guidelines.
Porter, who works as a State Farm agent himself as an independent contractor, presented his bill Monday to the House Workforce Development Committee.
“We need some sort of clarification on what an independent contractor is,” Porter said. “I understand the pros and cons and the various lawsuits over the years of trying to find an agent’s identity, so I know that can be the case in other professions as well.”
The bill received support from the United States Chamber of Commerce and the Missouri Chamber of Commerce and Industry during the hearing.
“The challenge in the past has been that it’s a very unclear barrier of law, it’s a very amorphous standard, and I think what we’re trying to do is make it a more process uniform so that we can determine in Missouri that when you qualify…and these factors are met, that you are an independent contractor,” Doug Nelson said on behalf of the U.S. House. “This bill does not dictate which way you’re going there, it just says that if you become an independent contractor, here are the uniform standards you must meet to qualify that particular person as an independent contractor.”
Carol Mitchell, general counsel for the Missouri Chamber, said the bill would add clarity and allow employers to comply with the law while giving workers more certainty about their job classifications.
Representatives of other professional organizations have alleged that the bill could further muddy the waters. While he said these issues needed to be addressed, Ray McCarty, president and CEO of Associated Industries of Missouri, said the federal level was a more appropriate place to standardize classification.
He said the IRS has a long list of requirements to qualify independent contractors, creating uncertainty that differing standards at the state level could further compound.
“We understand the intent of the bill, support the intent of the bill, we just don’t think you can do it at the state level,” he said. “We think this is really something that you need to address at the federal level so that it applies to everyone equally and that you don’t leave employers with two different treatments for the same relationship.”
Mark Dalton of the Mid-America Carpenters Regional Council said misclassification of workers was a major problem in the construction industry, with audits in 2016 finding 8,196 workers across the state had been misclassified wrongly as entrepreneurs.
While he agreed the issue needed to be resolved, he said the bill would only create more confusion with different standards at state and federal levels.
Jeff Aboussie opposed the bill on behalf of the Kansas City and St. Louis operations engineers unions, saying it would be beneficial to work with industries that would be affected by the bill to review a potential solution.
Mark Moreland offered lawmakers a legal perspective on behalf of the Missouri Association of Trial Attorneys, noting that the bill required employers to satisfy an IRS rule governing classification. He said the bill flies in the face of federal tax law, creating standards that trick business owners into thinking meeting state standards is good enough, then facing an audit from the government. ‘IRS based on federal regulations. It would also allow companies to circumvent benefits by classifying employees as contractors and freeing themselves from pension or insurance requirements for those workers, he said.
“To me, that legally allows for the misclassification of workers,” he said. “A lot of our systems in our society – our pension system, our health care system, our unemployment system – don’t work by giving subsidies to the government, but by saying that when you employ someone, this is what we’re waiting: you’re paying into unemployment, you’ve got workers’ compensation, you’ll have some sort of pension package, and what that does is say, ‘Don’t worry about that. We’ll push it up’ to the little guy.'”
While opinions were divided on the proposal as it stands, Porter said he was ready to work on a version of the bill that would succeed.
“I’m open to any type of (resolution) to this issue,” he said. “I don’t mind talking about it as long as both parties are okay with it, so that’s the point of this hearing – to try and shake the tree and see what kind of opportunities will come out of it.”
HB 2498: Classification of workers
Sponsor: Rep. Jeff Porter