AUGUSTA, Maine — Gov. Paul LePage abolished a task force looking at employee misclassification last week because he is submitting legislation that would use the federal definition of an employee for all state purposes, eliminating the different standards now in use.
“What they have been working on would not contribute to the change I am proposing,” he said in an interview. “The whole point is to get one definition for everybody.”
LePage said he has asked his staff to draft legislation to replace the varying standards in Maine law. Current law has differing definitions and guidelines for income tax purposes, unemployment and workers’ compensation coverage.
“We will be submitting legislation to make some remedies to that and make it consistent so that all agencies and all businesses have the same definition,” he said.
LePage said he was concerned that state definitions and rules have gone “too far” and have virtually eliminated the use of independent contractors by some businesses.
“I just think that is a bad direction for the state, so we are going to try to reverse that,” he said.
Sen. Chris Rector, R-Thomaston, is the co-chairman of the Labor, Commerce, Research and Economic Development Committee. He said he is “far from” an expert on the issue but has listened to several discussions on the problems of defining independent contractors under state law with different agencies using different definitions.
“Anything we can do to simplify the ability for employers to unknowingly make mistakes and refine definitions is probably as important as anything we can do as a Legislature,” he said.
Rector said there are several bill titles submitted by lawmakers that also address the same area, and he is sure the panel will have a “lively” discussion of the issues as well as the legislation the governor proposes.
“Initially, something like this has an appeal, but it could end up having some devastating effects,” said Rep. John Tuttle, D-Sanford, the ranking Democrat and a former chairman of the Labor Committee. “You have people who say they are independent contractors, and they are on a job and are hurt, and you find out they have no insurance coverage.”
He said that in the last session of the Legislature, lawmakers worked with the construction industry to come up with rules and training requirements to make sure workers were properly categorized, and Tuttle believes it has been working well.
“Maybe we should try to get some of that same group together to see if we can come up with language to apply to other businesses,” he said. “That legislation was a unanimous report from the Labor Committee, and I think that would be the way to go on this.”
Tuttle said that even if the federal definition is adopted, it will take rule making by state agencies to implement the definition, which he said is really guidelines. He said he is worried that there may be unintended consequences to the governor’s proposal.
The Employee Misclassification Task Force had been set up by Gov. John Baldacci in 2009 because of complaints from union groups that argued that the use of independent contractors and cash payments for work “under the table” was believed to be widespread, particularly in building and construction, and undercuts union workers and union employers.
The preliminary report of the task force said employee misclassification occurs when an employer designates a worker as an independent contractor instead of an employee under state law and the worker is an employee.
The report concluded that there are significant financial effects from misclassification for both the government and employers. Labor Department analysts estimated that tax losses to the state could be as much as $36 million a year from misclassification.
The federal definition from the Internal Revenue Service does not have hard rules but provides guidelines. The key question is behavioral: Does the company control what the worker does and how they do their job? The second is financial and goes to how the worker is paid and whether they supply their own tools and supplies. The third is the nature of any written contracts between the company and the worker.
“Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor,” the IRS advises on its website. “Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no magic or set number of factors that makes the worker an employee or an independent contractor, and no one factor stands alone in making this determination.”
Rector said he hopes the governor submits the legislation soon so it can be considered with similar measures lawmakers have proposed this session.