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Independent Contractors: Your Independance Is Being Challenged!

04/13/2010

The role of independent contractors in the promotional products industry is being threatened by legislation that has a high likelihood of passage. Two key bills – one in the Senate and the other in the House—propose eliminating the “safe harbor rule” and virtually ending the use of independent contractors in the promotional products industry.

 We need your help crafting persuasive and compelling arguments that protect the safe harbor rule for promotional consultants. Ideally these arguments will focus on the fact that an independent contractor is self employed even though they sell on behalf of only one company. If the safe harbor rules are eliminated, then these entrepreneurs will likely become employees.

 If you are an independent contractor, tell us why you like to being self-employed in less than 500 words. All entries will be eligible for a drawing and the winner will receive an iPad. Entries (both written and video) are due no later than May 15, however early submissions are encouraged!

 We will use your entries to develop testimonials and white papers. We may ask you to participate more fully in our advocacy effort. For more on this issue, click here to read PPB: http://www.ppbmag.com/Article.aspx?id=5277

 Please send your testimonial to Anne Lardner at AnneL@ppai.org, 972-258-3041.

 When you have finished sending us your testimonial, please go to PPAILAW.org and follow the prompts to send a letter opposing this regulation to your representatives.

Background

The safe harbor rule, Section 530 of the Revenue Act of 1978, recognizes a long-standing practice in our industry. Essentially, promotional products consultants can be treated as independent contractors even though they might not meet all of the common law factors. Generally, while the promotional consultant, as a business, possesses many of the characteristics of an independent contractor as defined by the 20-point common law test, the consultant typically works for a single distributor, and therefore fails those points that relate to working for more than one person or firm.

The proposed legislation would repeal Section 530, repeal the industry practice safe harbor, would remove the prohibition on the IRS’ authority to issue new regulations on the subject and would allow the prospective reclassification of individuals to whom Section 530 safe harbor relief had been applied. In short, this could potentially end the use of independent contractors.

Representative Jim McDermott (D-WA) has introduced H.R. 3408, The Taxpayer Responsibility, Accountability and Consistency Act. Senator John Kerry (D-MA) has introduced S. 2882, a similar bill, in the Senate. In 2007 then Senator Obama introduced the same legislation, so the administration supports both bills.

According to PPAI’s Distributor Business Survey, about 45 percent of the overall industry’s estimated 125,000 sales force participants are independent contractors, and firms reporting less than $1 million in annual sales indicate that 60 to 70 percent of their sales forces are independent. More than half the industry’s distributor firms would be affected should pending legislation require them to turn their independent contractor sales forces into employees.

Reasons For Legislation
Why is legislation being introduced? The legislation is intended to deal with the perceived abuses by employers wrongfully classifying workers as independent contractors to avoid paying certain employment taxes and offering employee benefits. In then Senator Obama’s comments supporting his bill in 2007, citing a “tax loophole,” he said “the Section 530 safe harbor in tax law currently encourages some employers to avoid paying their taxes in full and deny their employees basic protections, thereby placing employers who play by the rules at a disadvantage, stripping the government of billions in uncollected business taxes, and exposing employees to a loss of overtime, workers’ compensation and other protections.” In particular the construction, high-tech, trucking and janitorial services industries were singled out as examples where abuses occur.

The legislation ignores the fact that in our industry salespeople willingly and intentionally opt to be independent contractors because they wish to be their own bosses, want to manage their own time and desire the independence that their sales positions afford them. In fact, any promotional consultant who is an independent contractor is a sole proprietor or principal of his or her own company for those very reasons. Promotional consultants aren’t hourly wage workers whose rights are abused.

The issue isn’t restricted to just distributors either. Suppliers who engage independent sales forces would also be affected should the laws pass.

If you wonder what the impact might be for a distributor to classify all its sales force from independent contractors to employees, just think of withholding federal income and social security taxes, paying an employer’s share of social security taxes, workers compensation insurance, employee benefits, and overtime and minimum wage rules. Throw in professional liability insurance while you’re thinking and any number of other federal and state labor law issues.

If your company is a distributorship and you engage independent promotional consultants to sell promotional products this issue affects you directly. If you’re an independent contractor and wish to remain so, this issue affects you directly. If your company is a supplier firm that engages independent contractors to represent your products or you sell to distributorships that engage independent contractors, this issue affects you directly.

Visit www.ppailaw.org and see how you can help present compelling arguments to stop this legislation from passing. Your independence is at stake.

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