HR Minute

Fun and Games with Taxes, Social Security Numbers and Independent Contractors

Posted In Tax

Red pin marking the 15th on a calendarOccasionally employers are faced with applicants or employees who claim that they are “sovereign citizens” and that the federal government is illegitimate. Accordingly, the applicant or employee claims, they are not subject to governmental taxation and, therefore, their employer cannot withhold taxes or make required contributions on the employee’s behalf. Sometimes applicants or employees will make the argument (supported by reams of “supporting materials”) that the Sixteenth Amendment was not properly ratified by the States and therefore is unconstitutional. Both of these tax protests have been rejected by the courts and, if acted upon, can be a crime. Of course, there is no form of tax protest on which an employer can rely to forgo its duty to withhold and remit required taxes.

Similarly, an employer cannot refuse to disclose and provide to the Internal Revenue Service (IRS) the social security numbers of their employees. In Yeager v. Firstenergy Generation Corp., 777 F. 3d 362 (6th Cir. 2015), the plaintiff claimed that the defendant refused to hire/terminated him on the basis of his religion when he refused to provide a social security number. According to the plaintiff’s professed religious belief, his identification by any number, including a social security number, caused him to have the “Mark of the Beast.” The federal district court and the Sixth Circuit had no trouble dismissing the claim. Under Title VII, religious discrimination claims are analyzed using two steps and the first step requires the plaintiff to prove a prima facie case by, among other things, showing the he holds a sincere religious belief that conflicts with an employment requirement. Because the IRS requires employers to collect and provide the IRS with the social security numbers of its employees, it is a “‘requirement imposed by law’” and not an “‘employment practice.’” Under this analysis, the Sixth Circuit held that the employee could not prove his prima facie case as a matter of law and affirmed the lower court’s dismissal of the lawsuit.

The United States Department of Labor’s (DOL) focus on the use of independent contractors is fairly well-known. In its Fiscal Year 2016 Congressional Budget Justification, the DOL’s Wage and Hour Division (WHD) has specifically requested funds to root out and remedy the “fissured” relationship between employers and employees. As the WHD put it, “[a]dvances in technologies and transportation and increased globalization have influenced the structure of businesses” resulting in companies “contract[ing] out or otherwise shed[ding] activities to be performed by other businesses.” This has resulted in employees who “may be unaware for whom they actually work.” WHD’s budget request is for funds that will support “directed investigations,” that is, investigations that are initiated by the agency rather than a complainant. WHD claims that such investigations will create a “deterrence effect.”

Interpreting the WHD’s bureaucratic language, it intends to increase its focus on the use by companies of workers who are classified as independent contractors. WHD’s budget request is yet another reason that companies should evaluate their use of such workers and ensure that such workers are properly classified.

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