(Sean Whaley/Nevada News Bureau) – A hearing room was packed [March 30] with labor and business representatives for a legislative committee’s consideration of a package of bills aimed at curbing the misuse of independent contractors.
The Senate Commerce, Labor and Energy Committee reviewed a package of bills generated from an interim legislative study seeking to clarify when it is appropriate for Nevada businesses to employ independent contractors.
The inappropriate use of independent contractors is a concern because it does not require the payment of unemployment insurance, workers compensation and many other fees and taxes that must be paid by most employers.
The package of proposals in Senate Bills 147, 148, 207, 208 and 242 was supported by labor groups and some construction industry representatives, but opposed by others in the Nevada business community.
Sen. Shirley Breeden, D-Henderson, who served as the chairwoman of the interim study looking at the issue, said the misclassification of workers as independent contractors costs the state millions in uncollected taxes and gives those that engage in the practice a competitive advantage over other employers. It also takes advantage of workers who should be classified as employees, she said.
“Employee misclassification happens when employers intentionally misclassify employees as independent contractors in order to avoid their legal obligations under federal and state labor employment and tax laws,” Breeden said.
These include minimum wage, overtime, temporary disability insurance, wage payment and federal income tax, she said. The U.S. Government Accountability Office estimated that in 2006 it lost $2.7 billion in social security, unemployment and income taxes due to misclassification, Breeden said.
It is also costing millions in lost revenues to states each year, including Nevada, she said. There has been no specific study of the lost revenues to Nevada, but the state Employment Security Division, which oversees the unemployment insurance program, provided some data to the interim study panel based on audits and investigations, Breeden said. The data showed that 2.7 percent of audited employment was misclassified.
“This gives a conservative estimate of approximately 31,000 Nevadans that may be misclassified,” she said. “From these numbers, the estimated annual revenue lost to the unemployment trust fund alone may be as much as $8 million.”
Her concerns were supported by Dan Reilly, state legislative director for the International Brotherhood of Teamsters, who came to the capital from Washington, DC, to testify in support of the legislation.
Misclassified workers are paid less and do not receive federal or state protections, he said.
“These bad-acting employers misclassify workers largely to save expenses and avoid liability in workplace injury and disability claims,” Reilly said.
Bruce King, a businessman in the construction business in Southern Nevada, said he does not support changing the definition of an independent contractor, but said the state needs to strengthen enforcement to prevent the misclassification of workers.
The issue of misclassification has been a “significant problem” in the construction industry in Clark County for more than a decade, he said.
But some business representatives questioned the need for much of the proposed legislation.
Gary Dunbar, lead counsel for the FedEx Corp., said the company is opposed to all five measures but for the task force proposal in SB208 for several reasons.
“The state’s current laws and regulations and enforcement mechanisms are more than sufficient to deal with this problem,” he said. “FedEx Ground’s experience with attorneys general has left us convinced they are neither too bashful nor lacking in statutory authority to protect the states’ interests.
“While no one should intentionally misclassify an employee as an independent contractor to avoid employment tax, workers’ compensation insurance, unemployment insurance, employee wage and benefit, and other legal obligations, the solution is not to enact legislation that discourages the use of this entrepreneurial business model,” Dunbar said.
The state director for the National Federation of Independent Business is also opposed to the measures: “I’d argue that independent contractors are the glue holding the state and the nation’s economic activity together,” said Randi Thompson. “Why would the Nevada Senate willfully want to harm our fragile economy and stifle any chance of recovery by limiting an employer’s ability to use independent contractors once in a while for only short-term work?”
The committee adjourned but was expected to return later this evening to further consider the measures.