Tax Provision Could Strip Worker Benefits

A little-noticed provision in the tax bill approved by the House on Thursday would make it easier for employers to turn millions of employees into independent contractors, a change that could have widespread effects on the growing number of telecommuters and others who work from home.

Accountants and other tax experts who have studied the bill say the provision would make it easier for employers to strip workers of unemployment compensation, overtime pay and other employee benefits.

The White House and labor organizations oppose the proposal, saying it could hurt workers. But Republicans and business supporters of the measure describe it as a much-needed legal clarification that would foster entrepreneurship by giving firms and individuals more flexibility.

The proposal, one of many items included in the tax bill, would change the legal definition of who is an employee and who is an independent contractor.

The distinction matters because under federal law, employees are eligible for benefits such as family medical leave, discrimination protection and workers’ compensation if they are hurt on the job. Independent contractors are not. Additionally, employers are required to pay Social Security and unemployment taxes for their employees, but not for contractors. Many companies, under pressure to cut labor costs, have sought to avoid these expenses and gain more work force flexibility by relying increasingly on consultants and other independent contractors. The independent contractor measure is not included in the Senate Finance Committee version of the tax bill, which is set for a vote by the full chamber Friday. The House and Senate bills are to be reconciled in conference later this summer.

Among those potentially affected are the nation’s estimated 9.2 million telecommuters, who use telecommunications technology to work from home.