1.7.21 – Center Square -by David Jacobs
Louisiana’s state government should not implement a strict crackdown on businesses that misclassify their employees as independent contractors, business advocates said Thursday.
Rules regarding worker classification are confusing, particularly for small-business owners, advocates said.
“A lot of these employers are small, mom-and-pop outfits,” said Jim Patterson, vice president of government relations at the Louisiana Association of Business and Industry. “They’re not deliberately trying to run afoul of the law. They just don’t know any better.”
The issue has drawn attention from lawmakers who said businesses that break the rules gain a competitive advantage over those that don’t. Businesses that misclassify workers also can get out of paying taxes to support unemployment benefits for Louisiana workers, forcing businesses that follow the law to shoulder more of the burden.
“When you have all of these people who are not paying in, you have a higher tax base for employers who are doing the right thing,” Louis Reine, president of the Louisiana AFL-CIO, said last year at a state Senate committee hearing.
The U.S. Department of Treasury estimated in 2013 that preventing worker misclassification would generate $8.32 billion in federal revenue over 10 years. The Louisiana legislative auditor said misclassification costs Louisiana at least $9 million from 2014 through 2018, but the actual amount could be much higher.
The state’s dwindling unemployment insurance trust fund, drained by unprecedented demand during the COVID-19 pandemic, focused new attention on the issue. Republicans in the House killed an effort to strengthen enforcement, saying they didn’t want to punish struggling businesses.
Louisiana remains the only state in the nation with an anti-misclassification law that gives businesses a warning on their first offense.
Legislators created a task force to study the issue and make recommendations for possible changes. The group met virtually Thursday and focused on businesses’ concerns. Other stakeholders will be featured during a future meeting.
Patterson said the state’s definitions of employees versus contractors differs from federal guidelines, which can be confusing for business owners. Different agencies sometimes interpret the rules differently, he said.
Patterson said penalties should be “reasonable but effective” and employers who come forward voluntarily to admit a mistake should be given “safe harbor.” He said state government’s goal should be to help businesses become compliant, not punish them, and state officials should be careful not to stifle the “gig economy.”
While many officials said misclassification is most common in the construction industry, Ken Naquin, who leads the Louisiana Associated General Contractors trade association, said the problem has been overstated.
“We have not found that the issue of the misclassification of independent contractors has been a widespread problem in our industry,” Naquin said.