LINCOLN, Neb. — Nebraska lawmakers want to clamp down on construction and trucking companies that they say are labeling workers as independent contractors instead of employees to avoid paying taxes and benefits like workers' compensation.
A bill that got first-round approval on Thursday would impose stiff fines against construction contractors and trucking companies that treat workers as independent contractors when they were in fact employees, as defined in the legislation. If the measure — LB563 — is approved, Nebraska would join about three dozen other states in cracking down on companies that try to trim payroll costs by illegally classifying workers as contractors.
Some who have studied the issue nationally say the problem has worsened during the economic downturn, according to an Associated Press review of the issue done earlier this year.
In Nebraska, legislative fiscal analysts have estimated that misclassifying employees as independent contractors causes the state to miss out on about $5 million in tax revenue each year. While pointing to that as a big benefit of the legislation, Sen. Steve Lathrop of Omaha, who introduced the bill, said the measure is mainly "about leveling the playing field so the honest contractor ... can compete with the person who is misclassifying employees."
By avoiding payment of unemployment insurance, workers' compensation and the employer's share of payroll withholding for taxes, contractors can save as much as 30 percent of payroll, giving them a big advantage when bidding for jobs.
Lathrop said he decided to focus on the construction industry because studies show that is where the largest percentage of employees are misclassified. Other states and the Internal Revenue Service are targeting other industries in addition to construction. The IRS said last month that it was starting a three-year study of employee misclassification.
The Nebraska bill also would apply to the trucking industry. The measure must be voted on twice more by lawmakers and, if approved, signed by Gov. Dave Heineman before becoming law.
The association representing trucking companies in the state supports the bill, but the association representing contractors opposes it, according to Lathrop's office. Officials with the Nebraska chapter of the Associated General Contractors of America did not immediately respond to phone messages from The Associated Press on Thursday.
Some Nebraska lawmakers say having better control over the hires that companies make could help curb illegal immigration. However, they questioned if government officials could have a difficult time adequately enforcing the legislation should it pass.
The bill proposes having allegations of employee misclassification funneled through a phone hot line and Web site overseen by the state Department of Labor. The department would investigate complaints and let the state Department of Revenue know if unpaid taxes should be collected. Law enforcement also could be contacted.
For a first offense of the law, companies would be fined $500 for each worker inappropriately classified as an independent contractor. Subsequent offenses would lead to fines of $5,000 per worker.
Kevin Jones of The Trucker staff can be reached for comment at email@example.com.
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