Update On Small Business: Sharper Line Is Sought Between Employee, Contractor By Jeffrey A. Tannenbaum. Wall Street Journal. (Eastern edition). New York, N.Y.: May 25, 1999. pg. B.2 Abstract (Document Summary) Some in Congress want independent contractors to be less independent. It is often a thin line at companies between an "employee" and an "independent contractor," who frequently is little more than an employee without benefits. But many employers have long resisted simplification efforts, fearing that they would wind up with more employees on the books, and thus with higher payroll taxes and benefits costs. Now, a bipartisan group of lawmakers is hoping to draw a sharper line between who is a contractor and who is an employee. The bill, sponsored by Reps. Jerry Kleczka (D., Wis.) and Amo Houghton (R., N.Y.), who classify service providers as employees unless they exercised control over their own work, stayed free to handle more clients and assumed some entrepreneurial risk. The current muddled rules, often involving a 20-factor test applied by the Internal Revenue Service, would go out the window. The bill already has 33 other co-sponsors, including nine members of the Republican majority. But the House Ways and Means Committee, which received the bill, has yet to schedule any action on it. "We are literally just beginning now to explain the bill to a wider audience," says a spokesman for Rep. Houghton, who heads the oversight subcommittee at Ways and Means. Full Text (940 words) Copyright Dow Jones & Company Inc May 25, 1999 SOME IN CONGRESS want independent contractors to be less independent. It is often a thin line at companies between an "employee" and an "independent contractor," who frequently is little more than an employee without benefits. But many employers have long resisted simplification efforts, fearing that they would wind up with more employees on the books, and thus with higher payroll taxes and benefits costs. Now, a bipartisan group of lawmakers is hoping to draw a sharper line between who is a contractor and who is an employee. The bill, sponsored by Reps. Jerry Kleczka (D., Wis.) and Amo Houghton (R., N.Y.), who classify service providers as employees unless they exercised control over their own work, stayed free to handle more clients and assumed some entrepreneurial risk. The current muddled rules, often involving a 20-factor test applied by the Internal Revenue Service, would go out the window. Rep. Kleczka calls the current criteria "burdensome and unworkable"; he maintains that many workers lose benefits and workplace protections when they are improperly regarded as contractors rather than employees. Many employers also are hurt, he adds, since they must compete with others that lower costs by wrongly classifying workers. The bill already has 33 other co-sponsors, including nine members of the Republican majority. But the House Ways and Means Committee, which received the bill, has yet to schedule any action on it. "We are literally just beginning now to explain the bill to a wider audience," says a spokesman for Rep. Houghton, who heads the oversight subcommittee at Ways and Means. The measure faces some significant hurdles. In recent years, the House did pass bills on the issue, but they gave more leeway to companies to keep workers off the employment books. The Senate, meanwhile, didn't adopt any of those measures. And this year's bill, even if acceptable to the House, could be tacked on to broader tax legislation, making it part of a long wrangling process. The Sheet Metal and Air Conditioning Contractors National Association, whose members are mostly small companies involved in construction, says it backs the bill. "We think all companies should at least own up to their tax obligations," says Stanley E. Kolbe Jr., the association's legislative director. (Companies are responsible for a portion of taxes paid by employees; but contractors must pay their own taxes.) But many others in small business oppose the bill. The Small Business Legislative Council, a lobbying group, says the measure would take away "flexibility" from many small companies. John S. Satagaj, president of the council, adds that many providers themselves, such as manufacturers' representatives, don't want to be anybody's employees but fear that the proposed law might make them so. DUELING SURVEYS differ on how well firms fight the Y2K bug. A year after a Wells Fargo Bank study found that most small businesses were oblivious to the so-called millennium threat, two newer studies find that many are still unprepared for the possibility that their computers, or those of their suppliers, will crash and cause chaos when Jan. 1 arrives. The underlying problem, of course, is the inability of many old computers to distinguish dates in 2000 from those one century earlier. Sounding one of the latest alarms is the Institute of Management Consultants, a professional group based in Washington. After an April survey of 242 U.S. businesses, the group concluded that 20% still had "no plan to perform any comprehensive testing" for Y2K-related problems. All of the companies lacking such plans were small (with 500 or fewer employees). "Small companies are much less prepared than large ones, and much more intimidated by the issue," says Lynn Marie Hoopingarner, a West Hollywood, Calif., consultant who served as senior editor of the report. Moreover, a Wells Fargo update, released yesterday, finds that although about half of all small employers now have begun fighting the Y2K bug, nearly 30% of small employers "plan to take no action at all." But is the outlook really that gloomy? One software vendor, Sage Software in Irvine, Calif., a unit of Sage Group PLC of Britain, says it polled 200 small companies in April and found that some 93% had already fixed their computer systems or were working on fixes. FORGET CASH, I WANT FREEDOM, entrepreneurs say. So concludes a new Louis Harris survey of more than 1,000 people who either work by themselves or oversee others in small companies. Only 12% gave the desire for more money as their main motive, compared with 23% who cited independence. (In addition, 6% cited "being my own boss," which sounds an awful lot like independence.) Still others had assorted motives, such as personal satisfaction or the lack of anything else to do. The survey, sponsored by GreenPoint Financial Corp. in New York, also found that U.S. entrepreneurs are more inclined to describe the American Dream in terms of independence generally, rather than financial independence in particular. "People go into business because they really want to set their own destiny," says Alvin N. Puryear, a City University of New York management professor and a GreenPoint director. But he adds that the survey respondents played down money to a surprising extent. Some regional differences, which the survey authors say they can't explain, emerged. Entrepreneurs in Los Angeles were least inclined to stress money (7%, compared with 25% in Chicago). But when asked about their daily fears and concerns, money was on lots of minds, even in Los Angeles. Overall, 11% named "not keeping up with bills and payments" as the thing most likely to keep them awake at night; a further 10% named inadequate cash flow. Credit: Staff Reporter of The Wall Street Journal More Like This - Find similar documents Subjects:Independent contractors Debugging Entrepreneurs Small business Polls & surveys Author(s):By Jeffrey A. 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