A new but perhaps little-known law in the State of Virginia requires that all employers, labor organizations, and hiring halls report information about newly hired independent contractors to the state’s New Hire Center. Effective July 1, 2020 the requirement falls under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. Though the Act originally focused on the reporting of Virginia employees, the revised Virginia Code Section 63.2-1946 has been expanded to now include the reporting of independent contractors.
The law states that:
“Employers that contract with a new independent contractor shall submit information concerning each new independent contractor to the Center within 20 days of the start of the contract.
“New independent contractor” means an independent contractor who (i) has not previously had a contract with the employer or (ii) had previously entered into a contract and has received a payment after receiving no payments for at least 60 consecutive days.”
An independent contractor is a paid individual or business who provides a specific service and maintains significant control over how and when they perform such service. A contractor agreement may be written or oral.
Employers must submit the following information about new or re-hired employees and independent contractors:
- Full name
- Social Security Number
- Date of hire or re-hire
- Employer name
- Employer address
- Federal employer identification number
The easiest way to report new hires is through Virginia’s website. Reporting can also be done by mail or fax.
Expanding the 1996 law to include independent contractors is Virginia’s way of better locating “non-custodial parents to establish paternity and child support orders, as well as enforce existing orders.” Additionally, Virginia uses this information to “help detect and prevent fraudulent payments to recipients of unemployment insurance, workers compensation, and welfare benefits.”
The new law is also meant to guard against worker misclassification as an independent contractor versus as an employee. It creates a cause of action allowing workers who believe they have been misclassified as an independent contractor to bring suit against an employer. If the action is upheld in court, the potential exists for the collection of back taxes, lost benefits, damages, and penalties.
Employers in Virginia will need to review their contractor agreements and note any situations since July 1, 2020, where a new contractor agreement was created, or payment was made to an existing contractor after more than a 60-day lapse.
Since the new laws present significant employer risk for worker misclassification, it would be worthwhile to examine employee and contractor classifications to ensure that all workers are properly classified. Virginia will determine the correct classification by applying the Internal Revenue Service’s 20-point checklist. Beginning January 1, 2021 employers can be fined up to $1,000 or more per intentional misclassification of workers. Repeat misclassification offenses can result in the prevention of participation in governmental contract work.