S. 4010 — 21st Century Worker Act

This section establishes definitions for 18 terms used in this title, including service provider payee (an individual providing goods or services to a service recipient payor in return for compensation), service recipient payor (a person receiving such goods or services), employee, employer, independent contractor, bona fide sole proprietor, formal bona fide contractor (requiring, among other criteria, unreimbursed expenses exceeding 5% of total compensation annually), limited economic relationship (involving compensation for less than 30 days worked per calendar quarter), compensation (valued at fair market value if not in legal tender), and money (legal tender as defined in 31 U.S.C. 5103).

This section establishes a bifurcated classification system for service provider payees as either employees or independent contractors. Specifically, it (1) classifies a service provider payee as a mandatory independent contractor if the payee meets the requirements of §103; (2) classifies a service provider payee as a mandatory employee if the payee meets the requirements of §104; and (3) classifies a service provider payee that meets neither set of requirements according to the payee's election under §105. The section assigns responsibility for the initial classification determination generally to the service recipient payor, except that the service provider payee is responsible if the classification as an independent contractor is based on §103(2)(A) (licensed professions, trades, or occupations), §103(2)(B) (business entities), §103(2)(E) (bona fide sole proprietors), or §103(2)(F) (formal bona fide contractors); such determinations must be made immediately upon entering an economic relationship. The section further requires reclassification and periodic review of classifications in accordance with §106.

This section requires classification of a service provider payee as an independent contractor if the payee (1) is not classified as an employee under section 104 and (2) meets one or more of the following criteria: (A) engaged in a licensed profession, trade, or occupation and holds out services to the public; (B) a business entity; (C) has a limited economic relationship with the service recipient payor; (D) a direct sales service provider payee; (E) a bona fide sole proprietor; or (F) a formal bona fide contractor.

This section establishes mandatory classification of a service provider payee as an employee if the payee meets one or more specified requirements: (1) a substantial economic relationship with the service recipient payor, or (2) employment by agreement.

This section establishes an elective classification process for service provider payees that do not qualify under §§103 or 104, requiring them to elect in writing—upon entering an economic relationship with a service recipient payor—whether to be classified as an employee or independent contractor. The election must be dated and signed by the payee and countersigned by the payor to be effective; if countersignature is requested but not received within 14 days, the payee defaults to independent contractor status without penalty. It further (1) requires both parties to retain the countersigned election for 3 years; (2) imposes penalties by the Secretary of up to $100 for failing to elect within 14 days or to retain records; and (3) imposes a penalty equal to 15% of compensation paid for willful or reckless misclassification as an independent contractor. This section clarifies that it does not require parties to enter an economic relationship.

This section establishes requirements for service recipient payors or service provider payees to make new classification determinations (i.e., employee or independent contractor status) upon specified changes in the economic relationship between the parties and through annual reviews. Specifically, it requires (1) a new determination upon a major change, defined as a 25% or more increase or decrease in hours worked or compensation paid in the most recent calendar quarter compared to the previous quarter, effective the first day of the first month following the determination; (2) a new determination upon other changes a reasonable person would anticipate could affect classification (e.g., loss of a license by the service provider payee, forfeiture of a business entity charter, change in relative importance of sales commissions, or change in exclusivity requirement), effective the calendar quarter after the event; and (3) annual determinations by January 31 for continuing relationships as of December 31 of the prior year, with any reclassification effective the first day of the first month following the determination. It exempts from these requirements any service provider payee with 100 or fewer hours worked or $10,000 or less in total compensation during the calendar quarter of the determination.

This section revises definitions in §3 of the Fair Labor Standards Act of 1938 (FLSA) as follows: (1) amends the definition of "employer" to adopt the meaning given the term in §101 of the 21st Century Worker Act (except as otherwise provided), while retaining inclusions for any person (including a public agency) acting directly or indirectly in the interest of an employer in relation to an employee and exclusions for labor organizations (other than when acting as an employer) or their officers or agents; (2) amends the definition of "employee" to adopt the meaning given the term in §101 of the 21st Century Worker Act (except as provided in paragraphs (2) through (5) for public agency employees); and (3) amends the definition of "employ" to include suffering or permitting to work under a substantial economic relationship (as defined in §101 of the 21st Century Worker Act) between an employer and employee, and defines "employment" as the provision of goods or services by an employee for an employer. (The FLSA establishes federal minimum wage, overtime pay, recordkeeping, and child labor standards.)

This section revises the definition of "employer" in the National Labor Relations Act (NLRA) to mean, except as otherwise provided, the term as defined in section 101 of the 21st Century Worker Act—while including agents of employers and excluding the United States, wholly owned government corporations, Federal Reserve Banks, states and political subdivisions, Railway Labor Act-covered employers, and labor organizations (other than when acting as employers). It further revises the definition of "employee" to mean, except as otherwise provided, the term as defined in section 101 of the 21st Century Worker Act—while retaining prior inclusions for certain striking or locked-out workers and exclusions for agricultural laborers, domestic workers, family employees, independent contractors, supervisors, and Railway Labor Act-covered employees. The section also adds a definition of "employment" as the provision of goods or services by an employee for an employer. (As background, NLRA definitions determine the scope of federal protections for private-sector employees' rights to organize and engage in collective bargaining.)

This section revises the definitions of *employee*, *employer*, and *employment* under the Internal Revenue Code for FICA (i.e., Social Security and Medicare taxes) and FUTA (i.e., federal unemployment taxes) purposes by (1) cross-referencing section 101 of the 21st Century Worker Act for *employee* and *employer*; (2) defining *employment* as any services performed by an employee for an employer; and (3) striking prior exclusions from employment and related conforming provisions. (Thus, the changes expand services subject to FICA and FUTA taxes.) The amendments apply to taxable years beginning after the date of enactment.

This section directs the Comptroller General of the United States to submit to Congress, not later than two years after the date of enactment, a report identifying (1) covered Federal laws that utilize the terms "employee," "employer," "employ," and "employment" in ways that do not correspond with the definitions of "employee" and "employer" under section 101 of this Act, and (2) how harmonizing those definitions across all covered Federal laws would alter each such law. Covered Federal laws include 25 specified statutes, such as the Age Discrimination in Employment Act of 1967, Americans with Disabilities Act of 1990, Title VII of the Civil Rights Act of 1964, Employee Retirement Income Security Act of 1974, Family and Medical Leave Act of 1993, Fair Credit Reporting Act (15 U.S.C. 1681 et seq.), and Worker Adjustment and Retraining Notification Act.