Proponents say the practice is so widespread that state and local governments lose millions of dollars in revenue annually from unemployment insurance and other business taxes not paid when employing independent contractors.
“We are trying to rectify the issue,” said Shirley Breeden, a Democratic state senator and chair of the Legislative Commission’s Subcommittee to Study Employee Misclassification, which prepared the bill recommendations.
Critics, however, say the proposed penalties are too severe and reflect an anti-business climate in the capital.
“Employers are very concerned that these and other efforts like (them) will be too punitive,” said Tray Abney, director of government relations for the Reno Sparks Chamber of Commerce, in an e-mail statement. “Right now, we need to be thinking of ways to encourage job growth and creation instead of beating down employers at every turn.”
Hiring workers as independent contractors has many benefits for employers. For example, health care insurance, retirement benefits, vacation and sick pay, workers’ compensation and typical reimbursements are not generally provided to independent contractors.
“The liability is gone,” said Dave Alexander, circulation manager for the Sparks Tribune.
Deliverers of the newspaper work as independent contractors — as do columnists and one photographer — and are paid a flat rate based largely on the size of their circulation area and the distance traveled to get there. This pay system reduces the tax filing workload of newspaper management.
Mike Harding, a real estate agent for Krch Realty in Sparks, said the upside of working as an independent contractor is the flexible schedule.
“I’ve been working a lot this first year to get started up, but really I don’t have to be here if I don’t want,” he said.
The downside is the stress of not having a steady paycheck, Harding said.
The savings in labor costs to employers who hire independent contractors lends the practice to potential fraud, however, and many legislators worry that the recessed economy has contributed to an increase in the purposeful misclassification of workers.
But Jim Nelson, president of the Nevada Association of Employers, is concerned that the proposed bills make no distinction between those employers who purposefully misclassify workers and those who do so accidentally.
“To hold employers who make honest mistakes subject to fines and penalties, and even lawsuits, seems vastly unfair,” he said in an e-mail statement.
In addition to fines and civil penalties for employers who misidentify workers — which begin at $5,000 per employee for a first offense and increase to as much as $25,000 and possible revocation of business licenses for additional offenses — legislative recommendations also propose expanded use of tests to determine proper classification, creation of a task force to regulate penalties and review audits and provide legal recourse for employees wrongly classified as independent contractors.
“Determining whether a worker can be classified as an independent contractor is a complicated process,” Nelson said.
The tricky nature of this process presents a significant dilemma for some.
“I think we are most concerned about what definitions they will use to classify an employee versus an independent contractor,” Abney said.
Breeden said that guidelines and tests for determining independent contractor status should eliminate mistakes in classification and clarify how exactly this class of worker is defined.
Some workers, however, think the legislation is not likely to have much effect.
“I think (legislators) are pissing up a rope,” said Jeff Estell, a field representative for the Bricklayers & Tilesetter Union in Sparks.
Members of his union, though similar in some respect to independent contractors, are not classified as such when hired to perform construction work by large firms. As part of a collective bargaining agreement, members receive certain health care, workers’ compensation and retirement benefits after a 45-day work period.
But with the current shape of the economy, Estell said he understood why employers might look to cut a few corners.
“I don’t blame (them) either way,” he said, adding that at times members of his union are pushed by employers to work as independent contractors.
Proponents say that legislation will benefit independent contractors by disincentivizing employers who in engage in illegitimate hiring practices and withhold benefits from qualifying employees.
“(Workers) need to be protected as well,” Breeden said.
Critics, on the other hand, see an ulterior motive at play.
“The independent contractor issue is a nationwide push by labor unions to get more people classified as employees so that they have more targets for union dues,” Abney said.
Mike Dillon, executive director of The Builders Association of Northern Nevada, said that while his organization needs to review the proposed legislation, in general “we are not going to be supportive of extra regulatory oversight.”
The prospect of more government regulation of private industry has left many in the business world leery.
“Rather than considering new legislation that imposes fines and penalties,” Nelson said, “perhaps there should be a legislative effort to help employers make the right decision.”