In a surprise political move, the Vermont bill seeking to clarify who can be classified as an independent contractor by employers was recalled to the House floor Thursday by Democrats after they got wind of a Republican effort to do the same.
Late last week, Rep. Kurt Wright (R-Burlington) was preparing to make a motion to relieve the committee of the bill and return it to the House. But House Commerce and Economic Development Committee Chairman Bill Botzow (D-Pownal) beat him to the punch and made the same move. Democrats worried that if the motion was proposed by the Republicans it would be rejected by the Democratic majority and it would appear they were trying to block it.
This sudden move will allow the bill to be debated on the House floor this week. The legislation session is slated to end next weekend, however, leaving little time for the Senate to consider the House bill.
The Vermont House Committee on Commerce and Economic Development had decided earlier in April to not take any more testimony this year on the controversial H. 867 bill regarding the definition of independent contractors out of fear that the bill would face opposition on the House floor and had a slim chance of passing in the Senate. The committee spent most of its committee time this year trying to work out disagreements between business lobbyists and labor unions. The committee made a last-ditch attempt to reconcile the bill, but was unsuccessful.
The original version of H.867 had outlined six specific criteria that a worker must meet in order to be considered an independent contractor. Current Vermont law has three subjective requirements, and also stipulated that independent contractors can’t perform the core work of a business.
The intent of the bill is to clarify the distinction between a self-employed independent contractor — responsible for things like payroll taxes and unemployment insurance — and an employee who enjoys a greater degree of protection under labor laws. Supporters say the bill will give self-employed Vermonters greater clarity and help them maintain independence. Opponents say it will open up Vermont to labor abuses in which large companies intentionally misclassify employees as independent contractors to avoid paying taxes and benefits, workers compensation or unemployment insurance.
“We have the responsibility to deal with a changing workplace both for employees and businesses,” said Rep. Bill Botzow, the chair of House Commerce. “We have what I would call 20th- and 19th-century policies around the workforce, and we’re 16 years into a next century and a next way of working.”
After pushback from labor interests and House Speaker Shap Smith (D-Morristown) the committee proposed a version of the bill that would make a person’s work status dependent on a more subjective set of circumstances that are still different from current Vermont law.
The U.S. Department of Labor has called independent contractor misclassification “one of the most serious problems facing affected workers, employers and the entire economy.” Construction companies, and startup technology businesses in particular have been found to commonly bring on employees but illegally classify them as independent contractors.
While companies can face stiff penalties for misclassifying workers as independent contractors, the labor laws protecting those workers are not always enforced. As a result, workers may end up paying extra Social Security and Medicare taxes and think they can’t apply for unemployment benefits if they lose their jobs.
Doug Hoffer, the Vermont state auditor, wrote in an Aug. 31 audit report that a misclassified worker making $44,000 a year could end up paying more than $3,000 in federal Social Security and Medicare taxes that their employer should have been paying. If the employer is not fined, the business would save another $3,000 on workers’ compensation and unemployment insurance. Hoffer concluded that Vermont was not doing enough to enforce penalties against employers.
H.867 proposes 27 pages of complicated law changes. Current state law defines independent contractors as workers who perform their duties on their own schedule and by their own methods. Independent contractors cannot be performing “like work,” or tasks that are also done by the company’s employees. The bill would continue to require an independent contractor to be free of day-to-day employer control and would require the contractor to be free to offer his or her services to other businesses, however it would remove the provision relating to “like work.”
In the proposed bill, employers will face a $5,000 fine for each misclassified worker, only companies that are found to have “purposefully” misclassified their employees or made false statements would have to pay further penalties or face legal enforcement.
The bill also clarifies that anyone who owns all or part of a business, including as an unincorporated sole proprietor, that is registered with either the Vermont secretary of state or local government will not be considered an employee, and will require any company using an independent contractor to post a state-provided written notice in a prominent place outlining labor rights and the new definitions.
The ongoing saga of this independent contractor bill in Vermont illustrates the new economy challenges of balancing the competing needs to protect workers who want to work independently while remaining true to the precepts of independent contractor classification, and also providing companies with the flexibility they need to be profitable without encouraging mistreatment of workers or the denial of benefits to which employees are entitled. Classifying and engaging workers as independent contractors is complicated, but not illegal. It pays to have an expert, like TalentWave, on your side to make sure you’re doing things right.
“ Wikipedia” Vermont Freedom and Unity