Louisiana’s Misclassification of Employees Task Force, which was assembled to tackle employer payroll fraud in the state, held its last meeting on Wednesday and disbanded without adopting most of the proposed legislation its members had hoped to give to state lawmakers for the regular session beginning April 12. After drafting a full report containing seven different proposals, the members tabled the five most substantive proposals and decided they would ask lawmakers to reassemble the task force for another session.
Last week, the members had several unanswered questions regarding some of their proposals and discussed asking lawmakers for more time to iron out some of the details.
A Senate resolution in October instructed the Department of Revenue to assemble a task force of experts to investigate the problem of businesses, often in the construction industry, misclassifying their workers as independent contractors instead of employees, which lets employers avoid paying several payroll taxes to the state — namely unemployment, workers compensation and income taxes.
Louisiana has more than 13,000 misclassified workers, costing the state more than $12 million in unpaid taxes, according to a 2019 study by the Louisiana Legislative Auditor. The primary problem, according to the auditor, is the state’s practice of issuing warnings, rather than fines, to companies that misclassify workers. Louisiana also doesn’t hold contractors responsible for hiring misclassified workers from third-party labor brokers, making enforcement more difficult for the Louisiana Workforce Commission. Even worse, the rarely-issued fines are only $250 — in accordance with a state statute that has essentially made it more cost-effective to break the law.
Despite last week’s announced plan to ask for more time, task force Chairman Luke Morris, who is assistant secretary of the Louisiana Department of Revenue, managed (along with his staff) to produce a full report with seven recommendations in time for Wednesday’s meeting. One of those proposals would have eliminated the warnings for first violations and implemented a $500 fine that would be subject to a mandatory waiver if the employer becomes compliant within 60 days.
That recommendation is far from what experts had suggested to the task force and what is in line with other states.
In a review of the laws of 49 other states, LWC Secretary Ava Dejoie found the average fine for first-time violators is $5,000 and as high as $15,000 in some places.
In October, Rep. Mandie Landry, D-New Orleans, sought to bring Louisiana in line with the rest of the country by introducing a bill that would have increased the fine to $1,000 for a first offense. Although it was backed by the Workforce Commission, the bill died in the House Labor and Industrial Relations Committee after the state’s largest lobby, the Louisiana Association of Business and Industry, opposed the measure with the committee’s Republicans.
Landry’s idea, however, has picked up bipartisan support since the October session. Rep. Neil Riser, R-Columbia, has pre-filed a bill that’s even stronger than what Landry proposed. House Bill 151 would implement a fine of up to $5,000 for a first offense. The penalties would increase for each subsequent offense and even mandate a fine of not less than $50,000 per employee for a company with three or more separate offenses.
In a phone interview Monday, Riser said his bill is one Republicans can easily support because it is fiscally conservative. The bill, he explained, would increase state revenue and simultaneously drive down costs for the legitimate businesses that have been paying their taxes and shouldering the tax burden of the cheating companies.
“It’s already state law,” Riser said. “This is just enforcing it.”
He said he believes the initial opposition to Landry’s bill was just a misunderstanding and hopes his party will now get behind the idea.
The proposal that first prompted the task force to discuss requesting an extension was an attempt to redefine “independent contractor.” Before submitting the new definition to the legislature, members reached out to the U.S. Department of Labor for feedback on whether it would comply with the federal definition. But the task force had still not received a response as of Wednesday.
“I think that there’s still a lot of points that need to be dealt with, including the fact that we still have not heard from U.S. DOL about whether this will be in compliance — if the definition would be in compliance,” said member Robert Wooley, assistant secretary of the Louisiana Workforce Commission’s unemployment office.
Another unanswered question had to do with the “fresh start” proposal, which would create a program to incentivize companies to voluntarily reclassify their workers correctly by waiving any penalties or payments that would normally be owed. A business would apply for the program and if accepted would not be liable for any past-due withholding or unemployment taxes. Some members asked what would happen if a company enters the “fresh start” program and later falls back into noncompliance.
The task force adopted only two recommendations. The first proposes to develop an educational outreach program for employers, employees and independent contractors. The second proposes a requirement that companies that file a Form 1099-NEC with the IRS must also file it with the Louisiana Department of Revenue. Often referred to as simply a “1099,” the form is a statement of the total wages a company pays to any non-employee for services in a given tax year. It is essentially an independent contractor’s equivalent of a W-2.
If granted an extension, the Misclassification of Employees Task Force would reassemble and next meet sometime after the regular session, which ends June 10.