In the employee benefits world, a lot can hang on an individual’s classification as an employee. Whether someone is a leased employee, an independent contractor, or a member of the rank and file can have a dramatic impact on a retirement or welfare plan. While employers typically attempt to create relationships that comply with the law, the IRS might not always agree. And it’s a bit more complex than one might expect at first. ERISA attorneys joke about the unhelpful and circular nature of ERISA §3(6) (“[t]he term ‘employee’ means an individual employed by an employer”). At the same time, tax practitioners will readily rattle off a list of twenty (yes, 20!) factors that can go into the determination.
A bill newly introduced in the U.S. Senate aims to change the complex analysis. Senate Finance Committee member John Thune, R-S.D., has introduced the New Economy Works to Guarantee Independence and Growth (NEW GIG) Act of 2017. By adding a safe harbor, the bill would “would ensure that the service provider (worker) would be treated as an independent contractor, not an employee, and the service recipient (customer) would not be treated as the employer,” according to the press release. The bill focuses on three elements: 1) the relationship between the parties, 2) the location of the services or means by which services are provided, and 3) a written contract.
Of course, we can’t throw out our twenty factors test just yet. The bill would merely provide a safe harbor. For relationships that don’t meet the criteria, the common law tests would still apply. While passage of the bill is yet to be determined, and its application to ERISA is also a bit murky (this is a tax provision aimed at collecting income and employment taxes), the legislation will be welcome news to many employers who have a difficult time discerning where the line is between independent contractor and employee.
