Raleigh, N.C. — State senators on Wednesday unanimously approved a proposal to crack down on employers who misclassify employees as independent contractors.
Sponsor Sen. Buck Newton, R-Wilson, credited a series by The News & Observer in Raleigh and the Charlotte Observer newspapers with bringing the issue to lawmakers' attention.
It's up to employers to report to the state whether their workers are full-time employees or independent contractors. If they report a worker as an employee, they're responsible for paying worker's compensation insurance, unemployment insurance and employment taxes for that employee. If they report a worker as an independent contractor, they can duck all of those additional costs.
"Why does that matter?" Newton asked. "In addition to costing the state a lot of money, it’s very unfair to the businesses of our state that do classify their employees right," paying the additional insurance costs and taxes.
Senate Bill 694 creates a new Employee Classification Division within the Office of State Budget and Management to investigate and adjudicate complaints and tips. Employers found to be in violation of the employee classification law could be hit with a $1,000 fine, plus back taxes and insurance for any worker they've misreported.
Some senators don't think that's enough to discourage dishonest employers that could save much more than $1,000 by breaking the law, as long as they're not caught.
Sen Josh Stein, D-Wake, said the new division should have been given more leverage, like the ability to issue a stop-work order on a site if an employer is found to be in violation.
"They’re scofflaws. They’re cheating employers who won’t do it the right way," Stein said. "We shouldn’t be coddling them."
Sen. Tommy Tucker, R-Union, agreed the law needs to be strengthened, but he said it's important "to get something on the books" as a start.
The bill would give employers a grace period until April 1, 2016, to square up their payroll reporting, Newton said.
"So that employers who’ve perhaps been skirting the issue or trying to blur the line have an opportunity to get straight without having to worry about penalties," he said.
The bill also gives the licensing boards for general contractors, heating and air conditioning contractors and electricians the power to suspend or revoke the license of any employer fined for misclassification.
The legislation now goes to the House.