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Worker Classification Policy Could Have a Big Impact on Contractors

Worker classification has long been a point of contention between the Internal Revenue Service and business and individual taxpayers.  The issue is now being addressed by the state of Virginia in a new policy that was implemented effective July 1, 2015.

Governor Terry McAuliffe issued an executive order in 2014 based on a three-year study that addressed the impact of worker misclassification within the Commonwealth.  In short, the study and executive order aimed at addressing the fact that worker misclassification:

  1. Undermines businesses that follow the law.
  2. Costs Virginia millions in tax revenue.
  3. Denies workers legal protections and benefits.

Many feel that this new policy could have an adverse impact on those who operate within the construction industry.  The intent is to impose penalties on businesses that intentionally misclassify workers as independent contractors in order to avoid payroll taxes and other benefit costs, which creates an uneven playing field for those bidding on construction contracts.  Nevertheless, a general contractor or subcontractor could be penalized and become liable for those on their job-site who willingly or unwillingly fail to be in compliance with the worker classification rules.  Inspectors will likely be on-site to question workers and inspect copies of contractor’s licenses for all firms present on the job-site.  Sanctions for non-compliance could include fines and/or loss of license.

We encourage you to contact the Yount, Hyde and Barbour construction team if you have additional questions on the new worker classification policy and how it may impact your business.

Christopher L. Frye, CPA | Principal