State seeks crackdown on misuse of independent contractor status

The state Department of Employment Security wants to be able to start fining companies that intentionally misclassify employees as independent contractors, but a bill giving the agency power to do so has hit a major hurdle.

According to a draft of the legislation, the agency would be able to fine violators $25 a day per worker for each day they fail to report that the workers should actually be counted as salaried employees and not independent contractors.

It also would allow a three-month grace period — from July 1 through Oct. 31, 2006 – for employers to report their independent contractors without paying additional fines and penalties.

The state has a widely accepted test to tell the difference between a worker that should be salaried – with the appropriate taxes taken out, and worker compensation and unemployment premiums paid – and independent contractors, said Michael Skelton, program specialist at Employment Security.

Skelton said the department will not levy the fines against those that simply made a mistake, but against those who repeatedly violate the law.

“It’s currently against the law to misclassify employees,” said Skelton. “But we don’t have the teeth to do anything. We want to make a level playing field, because those who use independent contractors instead of employees are able to bid so much lower than those who don’t.”

Skelton said that some of the money raised by the fine would enable the department to be more proactive – both in educating employers about when and when not to use independent contractors, as well as to go after those that abuse the system. Currently, the department usually launches an investigation only after a laid-off worker classified as independent contractor tries to collect unemployment.

But Rep. Will Infantine , R-Manchester, the ostensible sponsor of the bill – said that while he doesn’t mind instituting a fine to enforce existing law, but he doesn’t want it to be used to go after employers.

Infantine who chairs a study committee on the independent contractor issue, recently released a report that calls for further clarification of the definition of an independent contractor and calls for the issue to be studied for another year. The report did not recommend any penalties against employers.

“When it comes to the point of fines and criminal penalties, I’m not ready to go there yet,” he said. “I’m hoping we can solve the problems by making some minor changes and continue to study the issue. There is a lot of gray area as to who is an employee and who is a contractor.”

Infantine’s committee found that there were more than 300,000 independent contractors employed in New Hampshire in 2004, earning a total of some $13 billion, “and I don’t want to paint these people with a broad brush.”

That brush could particularly swipe the construction trades, who often rely on independent contractors. Gary Abbott. executive vice president of the Associated General Contractors of New Hampshire, echoed some of Infantine’s concerns.

The line between a worker and contractors “is really complicated,” Abbott said. “There is still a lot of room for interpretation, and it could raise an eyebrow that when there is a dispute, they (the department ) are going to battle it with higher fines. There are some arrangements when they think an independent contractor should not be allowed, when they (the independent contractors) are not illegal.” — BOB SANDERS