Misclassification of Workers - Proskauer Rose LLP

© 2010 Proskauer Rose LLP
might be considered employees) and be relieved of employment
tax and income tax withholding liability, including any interest or
penalties. To benefit from Section 530, the business must have:
i. Properly filed all federal tax returns and Forms 1099;
ii. Treated, for employment tax purposes, all of its workers
holding substantially similar positions in the same manner;
and
iii. Had some reasonable basis for not treating the workers as
employees.
6. Taxpayer Responsibility Accountability, and Consistency Act of 2009
a. In December 2009, Senator John Kerry, D-Mass, introduced the
Taxpayer Responsibility, Accountability and Consistency Act of
2009 (“TRACA”) to close the safe harbor created by Section 530. 8
If enacted, the TRACA would, among other things, change the safe
harbor provision to minimize abuses and require companies that pay
more than $600 a year to providers of property and services to file
an information report with each provider and with the IRS.
7. Unemployment Compensation
a. Generally, a business could be found liable for unemployment
insurance withholding in the state in which the business resides if a
temporary employee files for unemployment insurance benefits
that are provided by state funds to “employees” and a state agency
determines that the applicant is an employee and not an
independent contractor.
b. However, an out-of-state telecommuting employee is not entitled
to the unemployment insurance benefits in the state in which the
employer’s business resides. In re Claim of Allen, 100 N.Y.2d 282
(N.Y. Ct. App. 2003) (holding that employee working from her
home in Florida for the company located in New York was not
entitled to receive unemployment insurance benefits from New
York because the employee was physically present in Florida
rather than New York).
c. In Florida, Cantor v. Cochran, 184 So. 2d 173 (Fla. 1966), sets
forth the factors considered to determine whether a person is an
employee or independent contractor:
i. the extent of control which, by the agreement, the master
may exercise over the details of the work;
8 See Taxpayer Responsibility Accountability, and Consistency Act of 2009, S. 2882, 111th Cong. 2009, available at
http://www.govtrack.us/congress/bill.xpd?bill=s111-2882 (last visited on March 21, 2010).