A bill that would help state agencies crack down on businesses that illegally classify employees as independent contractors is moving forward in the House.
A House judiciary committee approved Senate Bill 407 on Wednesday, and it passed the full House on Wednesday evening. The bill calls for an employee classification group within the Industrial Commission to investigate misclassification complaints and coordinate with state agencies and prosecutors to ensure that they share information.
Former Gov. Pat McCrory created the Industrial Commission group through an executive order in 2015, but the bill would make the order a permanent state law.
Businesses would be required to disclose any misclassification investigations to occupational licensing boards. Licenses would be revoked for failure to disclosure the information.
The bill’s sponsor, Republican Sen. Andy Wells of Hickory, said businesses have a financial incentive to misclassify their workers if they don’t get penalized. Treating employees as independent contractors allows businesses to avoid paying unemployment insurance, worker’s compensation and payroll taxes, and it leaves workers without some employment protections.
“It’s a fairly profitable thing to do, and it creates some problems in the market,” Wells said. “The businesses doing things the right way are completely out of luck. They’re at a competitive disadvantage. You could get to an extreme where the bad guys are the only ones in the market because they’ve driving out everyone else.”
The bill comes in the wake of a News & Observer and McClatchy series, “Contract to Cheat,” that documented employee misclassification problems in North Carolina and across the country.
In North Carolina, nearly 45 percent of the 826 companies taking part in construction of federally-funded or -backed affordable apartments during the recession deducted no taxes from laborers and mechanics, the report found. Licensing boards have had limited power to address the problem.