Testimony given by Diana A. Ehrlich to The Governor's Task Force on Independent Contractor Status

Wednesday, February 3, 1999, Albany, New York

The Business Council of New York State, Inc. thanks the members of the Governor's Task Force on Independent Contractor status for the opportunity to testify on this issue. The Business Council is the largest, diversified statewide association of businesses in New York State. We represent both large and small companies, and all industry sectors. Our presentation today represents those shared yet varied interests.

Currently, businesses have no simple and consistent method for determining with certainty whether an individual that is hired to perform a specific job is an independent contractor or an employee. This difficulty has resulted in a statewide problem that encompasses many diverse occupations. Employer-employee relationships are defined by at least four regulatory entities for differing purposes. The Internal Revenue Service and the New York State Department of Tax and Finance for taxation, The New York State Department of Labor for unemployment insurance & labor standards; and The Workers' Compensation Board for workers' compensation.

Unfortunately, each of these regulatory agencies has differing interpretations as to what constitutes an employer-employee relationship. To complicate matters even more, there is significant case law that defines the relationship on a case-by-case basis. Unfortunately, these determinations are often contradictory.

In short, the business community needs to know in advance that a person from whom they obtained services is in fact an independent contractor or an employee. Clear cut rules prior to entering into a business relationship are needed so that businesses can make the decision as to whether to hire an independent contractor or an employee. In turn, workers should also have the right to be informed up front as to what type of relationship they are getting into, so that they too can make the best decision suitable for them.

Many businesses choose to retain independent contractors as opposed to employees for various reasons. Contracting out allows firms to combine the virtues of size - large pools of talent and economies of scale - with the benefits of trimness - focus, responsiveness, and low overheads. In addition, contracting brings about greater responsiveness to customer needs, making it easier to absorb fluctuations in demand by giving firms access to extra workers and factories when the market is booming without mandating them to pay for under-employed workers and unused plants when it is flat.

As we approach the new century, new industries are being developed and our society is seeing new occupations arise. Today's project-oriented workplace has led to the emergence of a new breed of worker, such as the high-tech consultant. Many projects today lend themselves to a blend of traditional employees, contract workers, and consultants, who join in teams, do a job, and then usually disband. Facing short product development cycles, companies need to do everything quickly, and that means assembling teams of people.

The occupations of today differ from the traditional jobs that we have seen in the past. The job market continues to change dramatically. There is an increasing number of self-employed people who desire to work out of their homes, work over the Internet, or trying to sell their specific talent to the business world. This is often a lifestyle choice that blends family needs and desires with one's professional talents. If the trend toward reclassifying workers as employees continues, businesses will be forced to cut back on the number of people like these that they can afford, because the cost of hiring a full-time employee, for whom they must provide workers' compensation insurance, unemployment insurance, disability insurance, and similar benefits now made available to their current workforce is just too high. This will severely limit the number of workers they can maintain while retaining flexibility.

In turn, when a business does hire an independent contractor, who is then found to have been mis-classified, it becomes one of the most costly errors that a business can make. A mistake which can ultimately cost thousands of dollars, and for smaller organizations, potentially put them out of business. Firms which have made this mistake have found that they are subject to not only large fines, but also payment of employment taxes including social security contributions, unemployment taxes, and federal income tax under withheld.

After extensive review from our membership considering the diversified spectrum of occupations and after years of effort to craft a uniform solution, The Business Council has determined it impossible to enact a generic piece of legislation that would encompass all occupations with the same standards. What may work for a fashion model is different than a cab driver, a computer consultant or a laborer. We would rather see an occupation by occupation directive which would provide workers, employers and enforcing agencies with clear cut determinations of one's employment status thereby giving everyone the same knowledge so that they can all read from the same script, thus be held accountable for their own actions. This will take considerable time to do right but we have already spent considerable time trying to find a "one size fits all" definition.

Thank you for your consideration of this important issue. I would be happy to answer any questions you may have.