House Committee on
Ways and Means
Opening Statement of The Honorable Jim McDermott
May 08, 2007
“I am pleased to join Chairman Neal in convening
this joint hearing of the Subcommittee on Income Security and Family Support and
the Subcommittee on Select Revenue Measures. We are here today to examine the
effects of workers being misclassified as independent contractors.
“For
workers in America, one word can make all the difference in their well-being.
That word is “employee.”
“Without such a designation, a worker is
excluded from most of the basic benefits and protections provided in the
workplace. Millions of workers now find themselves in that precarious
position.
“When a worker is classified as an independent contractor,
instead of an employee, he or she might be subject to huge back taxes because
their employer did not withhold income taxes.
“They may be denied Social
Security and Medicare when they retire because taxes were not paid on their
behalf.
“If they are injured on the job, they may not have access to
workers compensation.
“And of great concern to my subcommittee, they may
be denied unemployment insurance if they are laid-off. In fact, a study
commissioned by the Department of Labor in 2000 estimated that 80,000 workers
are improperly denied unemployment benefits every year because they are
misclassified as independent contractors.
“There are certainly times when
the term independent contractor is justifiably applied, such as when an
individual is in business for himself. But there are other occasions when a
worker is under the control of an employer and should be designated an employee.
“Misclassification may occur because of definitional uncertainties, but
it likely happens at least as frequently because some employers are looking for
an easy way to cut costs. Misclassifying a worker as an independent contractor
lets a business off the hook for various payroll taxes and employee
benefits.
“When unscrupulous employers commit this type of fraud, it
hurts more than workers. Responsible businesses who play by the rules are placed
at an unfair competitive disadvantage.
“Just envision two construction
companies bidding on the same contract, and then consider what would happen if
one of them paid taxes and provided benefits for its workers, while the other
did not.
“As a tax avoidance scheme, misclassification also robs both the
States and the federal government of revenue. Prior estimates from the Internal
Revenue Service (IRS) indicate billions of dollars of taxes go unpaid every year
because of misclassification.
“The misclassification of workers is not a
new problem. However, the pressures of globalization and the rising cost of
health and other benefits as a portion of total payroll costs suggest it will
become a growing concern. Indeed, some of the recent State-level studies find an
increasing amount of misclassification over the last few years.
“For all
of these reasons, I hope we will consider sensible solutions to prevent workers
from being wrongly classified as independent contractors.
“I now yield
to the Chairman of Subcommittee on Select Revenue Measures, Mr. Neal.”