[Congressional Record Volume 156, Number 124 (Wednesday, September 15, 2010)]
[Senate]
[Pages S7135-S7136]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KERRY (for himself, Mr. Brown of Ohio, Mrs. Murray, Mr. 
        Franken, Mr. Akaka, Mr. Schumer, Mr. Leahy, Mrs. Gillibrand, 
        and Mr. Menendez):
  S. 3786. A bill to amend the Internal Revenue Code of 1986 to permit 
the Secretary of the Treasury to issue prospective guidance clarifying 
the employment status of individuals for purposes of employment taxes 
and to prevent retroactive assessments with respect to such 
clarifications; to the Committee on Finance.
  Mr. KERRY. Mr. President, today I am introducing the Fair Playing 
Field Act of 2010 to provide a fairer playing field to America's 
businesses and workers. It will ensure workers are afforded protections 
already in the law, such as workers' compensation, Social Security, 
Medicare, payment of overtime, unemployment compensation, and the 
minimum wage. It will also ensure help

[[Page S7136]]

employers who play by the rules are not forced to compete against those 
businesses that don't. This legislation is identical to legislation 
being introduced in the House of Representatives by Representative 
McDermott. Senators Murray, Gillibrand, Sherrod Brown, Franken, Akaka, 
Schumer, and Leahy are cosponsors.
  Under current law, employers are required to take certain actions on 
behalf of their employees including withholding income taxes, paying 
Social Security and Medicare taxes, paying for unemployment insurance, 
and providing a safe and nondiscriminatory workplace. Employers are not 
required to undertake these obligations for independent contractors. 
Too often, workers are misclassified by businesses looking to avoid 
paying taxes. These businesses receive an unfair advantage over 
businesses that play by the rules.
  The Internal Revenue Service, IRS, currently uses a common law test 
to determine whether a worker is an employee or independent contractor. 
Unfortunately, a loophole exists which allows a business to escape 
liability for misclassifying employees as independent contractors. 
Furthermore, there is statutory prohibition on the IRS providing 
guidance through regulation on employee classification.
  Federal and State revenue is lost when businesses misclassify their 
workers as independent contractors. A study estimated that, between 
1996 and 2004, $34.7 billion of Federal tax revenues went uncollected 
due to the misclassification of workers and the tax loopholes that 
allow it. Recently, GAO and Treasury Inspector General reports have 
cited misclassification as posing significant concerns for workers, 
their employers, and government revenue.
  Section 530 of the Revenue Act of 1978 generally allows taxpayers to 
treat a worker as not being an employee for employment tax purposes, 
regardless of the worker's actual status under the common law test, 
unless the taxpayer has no reasonable basis for such treatment or fails 
to meet certain requirements. Section 530 is commonly referred to as a 
``safe harbor.'' This provision was initially enacted in 1978 for a 
year to give Congress time to resolve these complex issues. In 1982, 
the safe harbor was made permanent. In addition, section 530 prevents 
the IRS from requiring an employer afforded a safe harbor to reclassify 
a worker prospectively.
  The Fair Playing Field Act of 2010 ends the moratorium on IRS 
guidance addressing the worker classification issue. The legislation 
requires the Secretary of Treasury to issue prospective guidance 
clarifying the employment status of individuals for Federal employment 
tax purposes. The effective date for the provision of authority to 
issue guidance is the date of enactment.
  Under the Fair Playing Field Act of 2010, the section 530 safe harbor 
will continue to be available to employers with respect to the 
treatment of an individual for Federal employment tax purposes until 
the individual has a reclassification date. An individual's 
``reclassification date'' is the earlier of the following two dates: 
the first day of the first calendar quarter beginning more than 180 
days after the date of an ``employee classification determination'' 
with respect to such individual; or the effective date of the ``first 
application final regulation'' issued by the Secretary of the Treasury 
with respect to such individual. An ``employee classification 
determination'' with respect to an individual is a determination by the 
Secretary of the Treasury, in connection with an audit of the taxpayer 
that begins after the date that is one year after the date of 
enactment, that a class of individuals holding positions with the 
taxpayer that are substantially similar to the position held by the 
individual are employees.
  I urge my colleagues to cosponsor the Fair Playing Field Act of 2010 
which will provide valuable protections to workers who are erroneously 
misclassified and help combat the underground economy.
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