[Congressional Record Volume 143, Number 139 (Wednesday, October 8, 1997)]
[Extensions of Remarks]
[Page E1964]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




       DISTINCTION BETWEEN EMPLOYEES AND INDEPENDENT CONTRACTORS

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                        HON. PETER J. VISCLOSKY

                               of indiana

                    in the house of representatives

                       Wednesday, October 8, 1997

  Mr. VISCLOSKY. Mr. Speaker, I rise to call your attention to 
legislation that I am introducing today that will clarify the 
distinction between employees and independent contractors. My 
legislation will tighten and simplify the definition of independent 
contractor in order to prevent employers from inappropriately 
classifying their employees as independent contractors.
  The Internal Revenue Service [IRS] currently uses a complex and 
ambiguous 20-point common law test to determine whether a worker should 
be classified as an employee or an independent contractor. The main 
problem with this test is that it isn't really a test at all. It is 
simply a set of guidelines that companies and the IRS refer to when 
determining whether workers should be classified as employees or 
independent contractors. Because the test is so ambiguous, different 
companies, IRS inspectors, and courts can--and have--classified the 
same type of workers differently.
  In recent years, employers have increasingly exploited the test's 
ambiguity, or purposely misinterpreted the test, in order to designate 
many of their present employees as independent contractors. Doing so 
cuts down on employers' costs, but it hurts workers because employees 
and independent contractors are treated very differently under Federal 
law. Those who are classified as employees are covered by worker safety 
standards, have the right to bargain collectively, and are eligible to 
receive unemployment compensation. Independent contractors, on the 
other hand, are not covered by the same stringent worker safety 
standards, do not have the right to bargain collectively, and are not 
entitled to receive unemployment benefits.
  The practice of improperly designating workers as independent 
contractors has negatively affected tens of thousands of workers, 
including those who work in the construction, service, agriculture, and 
garment industries. The problem is particularly troublesome in the 
trucking industry, where it is relatively easy to classify owner-
operators as independent contractors. As a result, there are thousands 
of workers in Indiana's First Congressional District, and throughout 
the country, who have been--or fear that they soon will be--classified 
as independent contractors.
  Although I opposed the measure, the House of Representatives came 
dangerously close to forcing thousands of employees to become 
independent contractors when, on June 26, 1997, it approved a provision 
to expand the definition of independent contractor as part of omnibus 
tax legislation. Fortunately, this provision was not included in the 
final version of the legislation. Public Law 105-34, but it further 
convinced me of the need to address the standards for determining 
whether a worker is an employee or an independent contractor.
  The legislation I am introducing would replace the current 20-point 
test with a simpler and stronger 8-point test as follows:

       The Internal Revenue Code of 1986 shall be amended to 
     clarify the standards for determining whether an employer-
     employee relationship exists.
       An individual who performs services for any person (in this 
     section referred to as the ``service recipient'') shall be 
     presumed to be an employee of such person unless all of the 
     following requirements are met:
       (1) The individual makes comparable services available to 
     the general public on a regular and consistent basis and 
     represents himself as an independent contractor with respect 
     to such services.
       (2) The individual has performed, or is available to 
     perform, services for more than one recipient at the same 
     time.
       (3) The service recipient does not have the right (and does 
     not attempt) to control the manner or means of the 
     individual's performance of such services.
       (4) The individual controls the means of performing the 
     services, including setting the sequence and hours of work.
       (5) The individual operates under contracts to perform 
     specific services for specific amounts of money, the rate of 
     which is negotiated for every service performed.
       (6) The individual may realize a profit or suffer a loss 
     under contracts to perform work or services.
       (7) The individual is responsible for the satisfactory 
     completion of the work that the individual contracts to 
     perform and is liable for a failure to complete the work.
       (8) The individual incurs significant unreimbursed capital 
     expenses (not typically incurred by employees) in carrying on 
     the business activity in which such services are performed.

  By preventing employers from improperly classifying their workers as 
independent contractors, my legislation will protect the rights and 
benefits of those employees who fear that they will soon be classified 
as independent contractors. Finally, I would like to point out that the 
test I am proposing today is balanced in such a way that workers who 
truly are independent contractors would continue to be classified as 
such.
  Mr. Speaker, I urge you and my other colleagues to prevent us from 
becoming a nation of independent contractors by cosponsoring this 
important legislation.




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