The gig economy has become an important part of our economy. This has increased ambiguity amongst how workers are classified versus the scope of their work. In recognition of this situation, new legislation has been introduced in the U.S. Senate to amend the Internal Revenue Code of 1986 to provide a safe harbor for determinations of worker classification by the IRS.
Senate Finance Committee member John Thune, (R-S.D.) in July proposed the New Economy Works to Guarantee Independence and Growth (NEW GIG) Act of 2017. The Senate bill outlines worker classification rules that provide a “safe harbor” for freelancers, consultants and other service providers to make it clear to the IRS that they should be classified as independent contractors.
According to a press release issued by the Senator’s office, the proposed legislation will create a safe harbor that ensures that an independent service provider will be treated as an independent contractor, not an employee, and the customer receiving those services will not be treated as the employer. If the transaction is facilitated by an internet platform or app, that third party will also not be treated as the employer.
The safe harbor focuses on three areas that are intended to demonstrate the independence of the service provider:
(1) The relationship between the parties (e.g., job-by-job arrangement, the service provider incurs his or her own business expenses, the service provider is not tied to a single service recipient);
(2) The location of the services or the means by which the services are provided (e.g., the service provider has his or her own place of business, does not work exclusively at the service provider’s location, provides his or her own tools and supplies); and
(3) A written contract (e.g., stating the independent-contractor relationship, acknowledging that the service provider is responsible for his or her own taxes, providing the service recipient’s reporting and withholding obligations).
This new safe harbor legislation could bring clarity to an issue that has spurred many legal cases over the proper classification of workers as either employees or independent contractors, and the benefits they should or should not receive as a result of their work arrangements. It will be interesting to watch as it moves through the legislative process in Congress.
To view the bill, click this link.
To view the press release click this link.