The “new economy”, in which the use of contract labor to meet work load requirements is increasing every day, is making it more difficult to collect court ordered child support.
When employers hire a new employee, Federal and State new hire reporting requirements help ensure that an individual who may be under a court ordered child support is recorded by the employer with the State. The State in turn makes sure the employee, and thus the employer, is complying with the child support garnishment order. With the steady uptick in the use of contract labor, employers are able to avoid that new hire reporting requirement.
This trend is particularly prevalent in what is referred to as the Gig Economy, the economic environment where it is common to hire workers, particularly in e-based organizations, for relatively short term positions. Rather than hire full time employees, individuals are contracted by businesses for short-term engagements. It is a growing trend. It is estimated that in 2015 15% of workers were contract labor and that figure has been projected to double by 2020.
The reasons for the increased use of contract labor are many. For many businesses like Uber or Lyft, the use of contract labor is part of their business model. Drivers work where, when and for as long as they want to. For project oriented businesses, like the software development, gaming or entertainment industries, employers only need workers on a short term basis and it is easier to hire them on a contract basis. And then there are the usual reasons. Some employers want to avoid government mandated requirements, like payroll tax and ACA requirements, and some workers want to be self-employed to avoid the same kind of regulations.
It is estimated that there is over $110 billion in uncollected child support. That number is again growing. The New Hire reporting requirements initiated in 1996 did put a dent in uncollected child support. As a result of these new laws, business were required to report to their State all new employees. The States then compared the names with a Federally organized data base of all individuals required to provide child support. The State then notified the business of the required payments due if payments were not being made. It is a successful program. The problem is the New Hire reporting requirements do not include contract labor.
This is changing however. About a dozen states including Texas, Ohio, Oregon, New York, New Jersey and California have regulations in place requiring businesses to report the hiring of contractors as new hires. More are considering the requirement. There is also a push to enhance enforcement of the regulation as States find that businesses in those states that have the regulation do not comply with it. As a result, there is a push for the Federal government to get involved, just as they did in the original new hire reporting requirement. The Advi$or will keep you posted.
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