Rhode Island: Commission's findings lead to employee classification law

The Rhode Island Senate is hoping that recently approved legislation will crack down on the misclassification of employees, which officials estimate cost the state at least $12 million last year in lost workers' compensation premiums and other taxes.

The legislation, sponsored by Sen. Christopher B. Maselli, D-Johnston, and a companion bill introduced in the state House of Representatives by Rep. Arthur J. Corvese, D-North Providence, were based on the recommendations of the Special Joint Commission to Study the Underground Economy and Employee Misclassification. After a yearlong study, the commission found that "misclassifying employees as independent contractors, or paying them on an ?under the table' cash basis wrongly deprives employees of the protection of worker's compensation, unemployment insurance, and wage and labor laws." The commission said it also deprives the state of millions of dollars in uncollected tax revenues and insurance premiums and "puts honest, law-abiding employers at a significant competitive disadvantage to employers who cheat the system."

Maselli's bill addressed several of the commission's goals, among them to develop a unified statutory definition of the terms "employee" and "independent contractor," to modify the filing procedures for independent contractor status, and to ensure that the business and labor communities are well-educated by the state about the employee classification law.

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The bill would clarify the definition of employee in the workers' comp and unemployment benefits context, require registration with the Department of Labor and Training of all independent contractors and the entities that hire them, expand the tools used to detect and limit the misclassification of employees, and permit the sharing of information by and between state departments to encourage enforcement.

"Employers who misclassify their employees as independent contractors avoid paying Social Security, unemployment and income taxes, as well as required workers' compensation and temporary disability insurance premiums," Maselli said. "As a result, the burdens placed on employers who play by the rules are increased. And the cost for the misclassified employees themselves are also high, as they may not qualify for certain benefits, such as unemployment and workers' compensation insurance."

Read more at the WorkersComp Forum homepage.

July 29, 2010

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