Feds halt Louisiana program that waives back taxes for employers with misclassified workers

New Louisiana law does not comply with federal labor laws, state officials say

By: - December 6, 2021 8:43 am
Term limits for Louisiana tax assessors moves forward in Legislature

The Louisiana Capitol Building, April 8, 2021. (Wes Muller/Louisiana Illuminator).

A new law passed this year that would have waived unemployment taxes and penalties for employers who misclassify their workers as independent contractors will not take effect in January as scheduled because parts of the statute violate federal labor laws, according to the Louisiana Department of Revenue and Louisiana Workforce Commission. 

The law had been pushed by the state’s biggest and most powerful business group, the Louisiana Association of Business and Industry.

In a bulletin issued Wednesday, the Louisiana Department of Revenue stated it was delaying implementation of certain provisions of the Fresh Start Program that lawmakers passed and Gov. John Bel Edwards signed into law during the 2021 Regular Session.

The Louisiana Workforce Commission has likewise halted parts of the law after the U.S. Department of Labor found the provisions were “not permissible under federal unemployment compensation (UC) law,” according to an emergency declaration issued by the Workforce Commission.

The Fresh Start Program is scheduled to take effect Jan. 1, 2022, but it will do so without key provisions that lawmakers designed for businesses that have characterized their regular employees as independent contractors — and failed to pay the employee taxes that are required. 

Under the program, the state would have waived any prior unemployment taxes and interest for certain employers who agreed to properly reclassify their workers as regular employees. 

Worker misclassification is a problem in Louisiana, particularly in the construction industry, and often deprives employees of basic labor rights and protections for workplace injuries, fair wages, family leave and unemployment insurance. It has also put a strain on Louisiana’s unemployment trust fund and has cost the state an estimated $9 million in income tax revenue, according to the Louisiana Legislative Auditor.

Compared to other states, Louisiana’s laws have been lax on enforcement to address the problem. First-time offenders can receive a $500 fine, but that penalty can be waived if the employer correctly reclassifies the worker within 60 days notice.

Sponsored by Sen. Jay Luneau (D-Alexandria), the legislation that created the Fresh Start Program was championed by business lobbyists and lawmakers as an alternative to heavy-handed enforcement in the hope that it would provide a path for employers who wanted to become legitimate tax payers but have avoided doing so because they would owe large amounts in back taxes.

However, the Labor Department told state officials that they cannot waive back taxes on unemployment insurance because it would violate the Federal Unemployment Tax Act and the State Unemployment Tax Act. 

“Waiving employer liability for back UI taxes is not permissible under federal unemployment compensation (UC) law and regulations,” the Louisiana Workforce Commission notice stated.

Luneau could not be reached for comment Friday.

The delay will last until the legislation can be amended in the 2022 Regular Session.

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Wesley Muller
Wesley Muller

Wes Muller traces his journalism roots back to 1997 when, at age 13, he built and launched a hyper-local news website for his New Orleans neighborhood. In the years since then, he has freelanced for the Times-Picayune in New Orleans and worked on staff at the Sun Herald in Biloxi, WAFB-9News CBS in Baton Rouge, and the Enterprise-Journal in McComb, Mississippi. He also taught English as an adjunct instructor at Baton Rouge Community College. Among his recognitions are McClatchy's National President's Award, the Associated Press Freedom of Information Award, and the Daniel M. Phillips Freedom of Information Award from the Mississippi Press Association. Muller is an alumnus of Jesuit High School and the University of New Orleans and is a veteran U.S. Army paratrooper. He lives in Louisiana with his wife and two sons.