AUGUSTA, Maine – Gov. Paul LePage has vetoed several measures creating studies this session but he did sign a measure authorizing a study to draft a uniform definition of an employee, a first step to implementing a promise he made in January.
“The whole point is to get one definition for everybody,” he said in January. His comments were made as he abolished a task force looking at employee misclassification. He 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.
“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,” LePage said.
Current state law has differing definitions and guidelines for income tax purposes, unemployment and workers’ compensation coverage.
The Employee Misclassification Task Force had been set up by Gov. John Baldacci in 2009 after 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 undercut union workers and union employers.
The preliminary report of that task force said employee misclassification occurs when an employer designates a worker as an independent contractor instead of an employee under state law.
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.
“I don’t know anyone that has obtained the right answer yet,“ said Sen. Chris Rector, R-Thomaston, the co-chair of the Labor, Commerce, Research and Economic Development Committee. “But we are hoping we will. We are thinking the right group is coming to the table.”
The study group, which includes both worker and employer representatives as well as state officials, is directed to report back by January 15, 2012 and the LCRED committee is authorized to report legislation to the legislature.
“We’ve been working on this for the last twenty years, “said Rep. John Tuttle, D-Sanford, the democrat lead on the panel. “Hopefully we do have the right group of people together this time to get it done.”
He said misclassification is a serous problem. He said too often he has had the wife of an independent contractor come to him because the person had been injured on the job and could not collect workers’ compensation.
“Too often the person is really an employee and we are dealing with a bad contractor,” Tuttle said.
The business community argues the issue is crucial to employers. They currently face three separate definitions, one by Maine Revenue Services, one by the Workers’ Compensation Board and yet another by the Unemployment Commission.
“Small employers feel like this is a gotcha situation,“ said Chris Hall, vice president of the Portland Area Chamber of Commerce. “They don’t know who is an independent contractor and who is not. They need a simple bright-line definition.”
He acknowledged translating that need into statutory language is easier said than done. But, he said the study group will have plenty of information already collected to use in crafting a definition.
David Clough, Maine Director of the National Federation of Independent Businesses, said if the state wants to move to a single definition, they should adopt the Internal Revenue Service definition.
“The only way we can have a definition that works for revenue services, unemployment and workers’ comp is to adopt the Internal Revenue Service rules because tax has to use the Internal Revenue Service rules,“ he said.
The federal definition from the IRS 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.”
While the panel has yet to be named, the law establishing the group sets up an interim definition that will be in force through the end of 2012. Rector said it “tweaks” existing law to hopefully make it more understandable and workable until a new definition can be crafted and adopted.