Employee or Independent Contractor?

A Growing Number of States, Including Virginia, Have Started Requiring Reporting of Independent Contractors to the State New Hire Directory 

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From JDSupra, Merrell Renaud discusses the new requirement for Virginia companies to report the new hire of independent contractors. Merrell writes: 

Under federal law, all employers (including public, private, government and not-for–profit employers, and employment agencies) are required to report certain data about new employees hired within 20 days of the employee commencing work to the National Directory of New Hires (NDNH). No business is exempt from reporting. Employers must also report re-hires or employees who return to work after 60 days of being laid off, furloughed, separated, granted a leave without pay or terminated from employment.

The goals of new-hire reporting are to 1) assist individuals to obtain payments under child support orders through wage garnishments, wage assignments etc., and 2) detect and prevent fraud in government benefits payments such as unemployment benefits and workers compensation benefits.

Federal law does not require employers to report independent contractors. However, 16 states currently require employers to report independent contractors. With little notice or fanfare, Virginia started requiring employers to report newly hired independent contractors effective July 1, 2020. Presently, Maryland and D.C. do not require reporting of independent contractors. Virginia defines a contractor as an individual who (i) provides any service performed for remuneration or under any contract of hire, written or oral, express or implied, and (ii) is not an employee pursuant to the definition of “employment” in Virginia Code § 60.2-212. Thus, it appears that a Virginia employer would not have to report entities (as opposed to individuals) with which it enters into an independent contractor relationship.

The federal Office of Child Support Enforcement (part of the U.S. Department of Health and Human Services) provides states with a quarterly report containing information on employers who may not have reported all new hires as required. Using the quarterly report, states may send notices to employers that appear to be noncompliant in reporting their new hires. States also have the option of imposing civil monetary penalties for noncompliance not to exceed $25 per newly hired employee and may also impose nonmonetary civil penalties for noncompliance. Criminal penalties may also be implemented in egregious cases. Virginia has not adopted any penalties for noncompliance. Nonetheless, it is recommended that Virginia employers that may not have noticed this new requirement start reporting newly hired and re-hired independent contractors on a going forward basis.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

Source: A Growing Number of States, Including Virginia, Have Started Requiring Reporting of Independent Contractors to the State New Hire Directory | Miles & Stockbridge P.C. – JDSupra

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