Governor, candidates, legislators promise action on cheating businesses

Perdue, candidates, legislators vow action on workers’ comp

mlocke@newsobserver.comAugust 22, 2012 

  • Who’s in the group? Gov. Bev Perdue assembled a task force to deal with employers who wrongly classify workers and use inadequate workers’ compensation insurance. The task force will pull together representatives of the state Industrial Commission, Department of Revenue, Department of Public Safety, Department of Commerce, Division of Employment Security, Department of Insurance, Department of Labor, Secretary of State, Attorney General, the N.C. Rate Bureau, the State Controller, Director of the N.C. Administrative Office of the Courts, Sheriff’s Association, and leaders of both the House and Senate. Insurance Commissioner Wayne Goodwin has been put in charge of the task force. He expected the group to begin meeting within the next few weeks. He expects the group will solicit feedback from businesses that are abiding by the law and hear explanations from those that aren’t. The task force will report progress to the governor’s office every six months. It will suggest changes to the law to enable the groups to share information, and a detailed explanation of any barriers they face.
  • Employee vs. contractor The federal government estimates that employers who inappropriately classify employees as contractors cost as much as $2.72 billion in lost tax revenue in 2006. Determining whether a worker can be considered a subcontractor (classified in tax code as a 1099 worker) is based on a list of questions that deal with the employment relationship. While some agencies that examine whether a worker is properly classified may have particular standards, many use a 20-question test compiled by the Internal Revenue Service. Questions that would help determine whether a worker is a W-2 employee deal mostly with the employer’s control over the worker. Answers that indicate more autonomy generally mean the worker can be treated as an independent contractor. Among the questions: •  Does the employer tell the person when and where to go for work and how to do the work? •  Did the employer train or have another employee train the new worker? •  Did the employer provide tools and other supplies needed to complete the job? •  Is this a continuous or expected to be a continuous working relationship? •  Does the employer dictate hours and approve time off? •  Is the worker expected to devote full time or substantially full time to the work? •  Is the worker required to submit regular or written reports to the employer? •  Is the worker paid by the hour or by the job? •  Does the employer pay travel expenses for the worker? •  Does the worker gain profits or suffer losses as the employer does? •  Does the worker work for others as well?

North Carolina’s leaders – and those campaigning to take charge in the coming year – promised Wednesday to wake a sleeping government in order to stop businesses that misclassify employees as contractors and avoid paying taxes and buying workers’ compensation insurance.

Gov. Bev Perdue ordered a team of agency leaders to meet and figure out how to work together to crack down on cheating businesses. Both men campaigning to be governor – Republican Pat McCrory and Democrat Walter Dalton – said fixing these problems is at the top of their priority list.

The commitments follow a three-part series in The News & Observer highlighting how honest business owners are losing their foothold as they compete against businesses that break the law to avoid taxes and insurance.

The practices are prevalent in the construction industry and have seeped into other fields. Some employers are treating their laborers as independent contractors instead of direct employees to avoid paying Social Security, unemployment tax, overtime and workers’ compensation.

Some business owners are buying “ghost policies,” inadequate workers’ compensation policies that sometimes leave wounded workers fighting for needed medical care.

Businesses that break the rules have prospered as North Carolina’s agencies worked in information silos, tending to their own sets of rules and failing to share critical information with fellow agencies.

“I am expecting this task force to cut through any red tape and make any recommendations needed to protect workers,” Perdue said in a statement.

The task force will report to the governor’s office every six months. The next governor could stop the task force formed by Perdue, who is not seeking re-election. But the nominees of both major parties seem likely to continue the effort.

Promising action

McCrory, who served as mayor of Charlotte from 1995 to 2009, said the N&O’s report reinforces his belief that state government is broken.

McCrory said it’s impossible to know who is in charge in state government and that the current setup of agencies leads to little accountability. If elected, McCrory said, he’ll examine whether some agency heads who now are elected ought to be appointed and report to the governor, a change that would require a constitutional amendment.

And he insisted that all state government information technology workers need a central boss who coordinates databases and upgrades to ensure those systems are equipped to share data.

“Toes will be stepped on,” he said. “Our state government is set up with a process of governing that’s stuck in the 1900s.”

Dalton, currently the lieutenant governor and a former state senator, also said the practices raise critical questions about the way the government is organized. He called the N&O findings about government agencies operating in silos “disappointing.”

If elected, Dalton said he would consider charging a single agency to crack down on businesses instead of sharing these responsibilities among many.

“Sometimes it’s too many cooks in the kitchen and nobody’s watching the stove,” Dalton said.

A legislative study

Legislators echoed calls for change.

Phil Berger, Senate president and an Eden Republican, said he’d be looking to the state controller to make recommendations on how agencies can better share their data and detect fraud. A report is due in October.

This summer, legislators formed a study commission after The N&O reported that at least 30,000 businesses were failing to buy required workers’ compensation insurance. That group will soon start meeting, and Berger said it could look at the larger issues as well.

“There seems to be a failure of the regulatory agencies to curb the inappropriate activity,” Berger said. “This can’t go on.”

Thom Tillis, speaker of the House and a Republican from Cornelius, near Charlotte, said in a statement that these issues are critical especially as the state tries to climb out of a recession. He urged the federal government to create meaningful immigration reform to address some of the business practices used to compete unfairly.

Many of the workers highlighted in the series are here illegally and cannot collect some benefits, but businesses are nonetheless required to pay on their behalf.

Support from the chamber

The N.C. Chamber says it’s time that businesses operating legitimately get some sort of protection against those that don’t.

“We have to make sure these folks (operating legally) aren’t penalized,” said Gary Salamido, vice president for governmental affairs. “More integration between agencies is very, very important.”

For those wrestling with an uneven playing field, change couldn’t come quickly enough.

Eric Mace, owner of Mountain Stone Masonry of New Hill, said issues of fairness have plagued the construction industry far too long, and he’ll be looking to vote in November for a candidate determined to fix them.

“People actually feel a little hope that this is finally coming to light,” Mace said. “The next governor has to fix this.”

Locke: 919-829-8927

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