Last week, the Construction Citizen team updated you on the fact that lawsuits about worker misclassification have been ramping up all across the country. The battle is playing out on multiple fronts – particularly in court houses and in the halls of state legislatures. The problem is at crisis levels across many industries, especially construction, and federal regulators have signaled they are getting more serious about reining it in.
Put simply, worker misclassification is cheating. It happens when a business pretends its workers are independent contractors when, by law, those people should be paid as employees. There are many legitimate uses of contract labor, however, which is why the IRS has this test to determine who can and cannot be classified that way.
Employers who intentionally cheat in this way do it to avoid payroll taxes, health benefits, and other protections for workers. Unscrupulous businesses use misclassification to lower their costs and gain an unfair competitive edge over employers who follow the letter of the law.
Lawmakers in Vermont are considering legislation to revise rules for what makes a person a self-employed independent contractor versus an employee. According to the news site VTDigger, "The most controversial part of the bill would change Vermont’s 'nature of the business' or 'like work' provision."
Reporter Erin Mansfield wrote that "Under current law, that provision means Vermont businesses are not allowed to bring on a single independent contractor or multiple independent contractors to perform work that is core to the business."
The bill, which is in a House committee now, may be changed significantly before it's possible passage into law. It has been delayed a few times already. One of the proposed amendments would “consider any people performing the same work as each other on a job site to be employees.” That amendment would slap businesses with a $5,000 fine if they coerce “a prospective employee into becoming an independent contractor.”
There’s also been discussion of allowing people to hold independent contractor status only if they pay for their own workers’ compensation insurance.
Lawmakers have also given thought to empowering the state’s attorney general to investigate worker misclassification. Under one proposal, the Vermont Attorney General could prosecute such offenses under the state’s consumer protection laws and collect attorney fees.
According to the National Conference of State Legislatures, or NCSL, "a big incentive in misclassifying workers is the savings on labor costs, which typically are a major portion of overhead for businesses. It’s estimated that a business can save 30 percent of their labor costs by using independent contractors rather than employees."
Taxpayers as a whole are picking up the slack, the NSCL said. “A report by the Government Accountability Office estimated that in 2006 alone, the federal government lost out on $2.72 billion in Social Security, unemployment and income taxes because of employee misclassification,” the group wrote.