North Carolina Legislation Targeting Worker Misclassification Gains Traction
September 2, 2015
By Patrick Hollrah
North Carolina businesses that engage independent contractors should pay special attention to H.B. 482 which would establish the Employee Classification Division (“Division”) within the Department of Revenue to target worker misclassification.
H.B. 482, which would be known and cited as the “Employee Fair Classification Act,” was introduced on April 1, 2015, by four republican members of the State House of Representatives. It was passed by the House of Representatives on August 13, 2015, by a vote of 90 to 15 and is currently being considered by the Senate.
The bill would have four main effects, namely it would (i) establish the Division and set its powers and duties, (ii) provide for a $1,000 penalty to be assessed for each instance of willful worker misclassification, (iii) permit state licensing boards to discipline construction contractors who engaged in worker misclassification, and (iv) prohibit vendors who were found to have misclassified a worker from entering into government contracts.
The establishment of the Division is perhaps the most important element of the bill as illustrated by the fact that the Division would become effective as soon as the bill is enacted, while almost all of the remaining provisions would take effect on January 1, 2016. To target worker misclassification, the Division would have the power and responsibility to receive and investigate reports of worker misclassification; assist and coordinate with State agencies to recover back taxes, wages, benefits, penalties and other monies owed as a result of an instance of worker misclassification; assess administrative penalties; and share information pertaining to each instance of worker misclassification with the Department of Labor, Division of Employment Security, and Industrial Commission to facilitate investigations of potential violations of the tax, wage and hour, unemployment security, and workers’ compensation laws.
Additionally, the bill would permit the Division to assess a civil penalty of up to $1,000 per misclassified worker against an employer found to have engaged in willful misclassification. A ten factor common-law test would be used to determine whether a worker is an employee or independent contractor. Under the bill, the Division would also establish a temporary amnesty program by which an employer may voluntarily self-report its current misclassification activities in exchange for amnesty from the $1,000 civil penalty. However, this amnesty program would not protect an employer from other civil or criminal penalties that may be assessed as a result of the reported misclassification.
H.B. 482 would also provide state license boards with the power to refuse to issue or renew, revoke, suspend, or restrict a general contracting, plumbing, heating, or fire sprinkler license if the Division determined that the applicant or license holder misclassified a worker and assessed a civil penalty. It appears that these provisions are intended to address the reported widespread practice of worker misclassification in the construction industry.
Furthermore, the bill would prohibit a vender from entering into a contract for goods or services with a State department if, within five years prior to the date of the bid for the contract, the Division found that the vendor engaged in worker misclassification and assessed a civil penalty.
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