Lawmakers targeting businesses ducking employee taxes

By Cy Ryan

Friday, June 11, 2010 | 2:05 a.m.

CARSON CITY — In these tough economic times, some employers have found a way to cut expenses by avoiding the business tax and not contributing to the fund that finances benefits to the unemployed.

The businesses are improperly classifying some workers as independent contractors and skipping the tax and the state assessments.

A legislative subcommittee has voted to recommend imposing hefty fines on employers that misclassify their workers.

Assemblywoman Bonnie Parnell, D-Carson City, said the practice is widespread and the state is losing a lot of revenue.

Jack Mallory, director of government affairs of the painters union in Las Vegas, said legitimate contractors are pushed out of the market because they cannot compete with those who break the law.

He said these contractors reduce their labor costs by as much as 30 percent by not paying various employment-related taxes or providing workers compensation insurance.

“This does not foster fair competition,” he told the Subcommittee to Study Employee Misclassification.

As a recommendation to be forwarded to the 2011 Legislature, the subcommittee agreed the employer should be fined for the first offense at $5,000 for each employee who is misclassified as an independent contractor.

A fine of $15,000 for each employee misclassified would be imposed for a second offense. And the fine for a third offense would be $25,000 and loss of their business license for three years.

The state imposes a tax on businesses based on payroll. By having employees classified as independent contractors, that tax is lowered. And the business would not have to pay into the unemployment trust fund or the account for coverage for workers injured on the job.

The subcommittee accepted the suggestion of member Yindra Dixon to give employees who are misclassified the right to file suit to collect money they were due but did not receive.

Labor representatives have testified that some employees who were misclassified were not paid minimum wage.

Dixon, of Las Vegas, said an employee who filed a complaint with a state agency would have to wait 120 days before filing suit. That would give the agency time to process the claim. If there was no decision, the worker could carry the case to court.

The subcommittee, headed by Sen. Shirley Breeden, D-Henderson, also is recommending to the 2011 Legislature that state labor law posters including definitions of employees and independent contractors be placed in areas where work is perform or employees congregate.

The subcommittee also wanted to ensure that audits are being made of employers to see if they are properly classifying workers. Subcommittee member Fran Almarez of Las Vegas said that is how other states have found money due in lost taxes or assessments.

Donna Clark, chief of contributions at the state Division of Employment Security, told the subcommittee that it conducts 4,000 random audits of employers a year, and about 12 percent of those are for misclassified workers.

The subcommittee, on the recommendation of Parnell, who is subcommittee vice chairwoman, approved a plan for civil penalties against a person who advises an employer to misclassify workers as independent contractors in an attempt to lower costs.