NC Senate OKs employer fraud fix

From, Laura Leslie reports that the North Carolina State Senate approved a bill that creates a new Employee Classification Division to investigate complaints of misclassification.  Laura writes:

“State senators on Wednesday unanimously approved a proposal to crack down on employers who misclassify employees as independent contractors.

Sponsor Sen. Buck Newton, R-Wilson, credited a series by The News & Observer in Raleigh and the Charlotte Observer newspapers with bringing the issue to lawmakers’ attention.

It’s up to employers to report to the state whether their workers are full-time employees or independent contractors. If they report a worker as an employee, they’re responsible for paying worker’s compensation insurance, unemployment insurance and employment taxes for that employee. If they report a worker as an independent contractor, they can duck all of those additional costs.

“Why does that matter?” Newton asked. “In addition to costing the state a lot of money, it’s very unfair to the businesses of our state that do classify their employees right,” paying the additional insurance costs and taxes.

Senate Bill 694 creates a new Employee Classification Division within the Office of State Budget and Management to investigate and adjudicate complaints and tips. Employers found to be in violation of the employee classification law could be hit with a $1,000 fine, plus back taxes and insurance for any worker they’ve misreported.

Some senators don’t think that’s enough to discourage dishonest employers that could save much more than $1,000 by breaking the law, as long as they’re not caught.

Sen Josh Stein, D-Wake, said the new division should have been given more leverage, like the ability to issue a stop-work order on a site if an employer is found to be in violation…”

Read the full story at Senate OKs employer fraud fix

Senate Bill 649 provides, in part:

SECTION 1.1. Chapter 143 of the General Statutes is amended by adding a new Article to read:
” Article 81.
” Employee Fair Classification Act.
” § 143-760. Title.
This Article shall be known and may be cited as the “Employee Fair Classification Act.”
” § 143-761. Definitions; scope.
(a) The following definitions apply in this Article:
(1) Employ. – As defined by G.S. 95-25.2(3).
(2) Employee. – Any individual that is defined as an employee by either G.S. 95-25.2(4), 96-1(10), 97-2(2), or 105-163.1(4). The term does not mean an individual who is an independent contractor.
(3) Employee Classification Division or Division. – The Employee Classification Division within the OSBM.
(4) Employee misclassification. – Avoiding tax liabilities and other obligations imposed by Chapter 95, 96, 97, or 105 of the General Statutes by misclassifying an employee as an independent contractor.
(5) Employer. – Any individual or entity that employs one or more employees as defined by G.S. 97-2(3).
(6) OSBM. – Office of State Budget and Management.
(b) Nothing in this Article shall be construed, or is intended, to change the definition of “employer” or “employee” under any other provision of law.
” § 143-762. Employee Classification Division.
(a) The Employee Classification Division is established within the Office of State Budget and Management.
(b) The State Budget Director shall appoint a director of the Division to serve at the Budget Director’s pleasure with such authority as the Director deems necessary to direct and oversee the Division in carrying out the purposes of this Article. The director shall be exempt from the State Human Resources Act and shall devote his or her entire time to the duties of the Division. The director may delegate any duties and responsibilities as may be necessary to ensure the proper management of the Division. The director’s salary shall be set by the State Budget Director.
(c) The State Budget Director may employ clerical staff, investigators, and other staff within the Division as is necessary for the Division to perform its duties under this Article. Notwithstanding Chapters 126, 143A, and 143B of the General Statutes or any other provision of law, the director may hire or fire personnel and transfer personnel within the Division. The Division shall be provided with adequate offices in which the Division’s records shall be kept and its official business transacted during regular business hours. The Division shall also be provided with necessary office furniture, stationery, and other supplies.
(d) The Office of the State Chief Information Officer shall ensure that the Division is provided with all necessary access to the Government Data Analytics Center and all other information technology services.
” § 143-763. Division powers and duties.
(a) The Division shall have the following duties:
(1) Be available during business hours to receive reports of employee misclassification by telephonic, written, or electronic communication.
(2) Investigate reports of employee misclassification, coordinate with, and assist all relevant State agencies in recovering any back taxes, wages, benefits, penalties, or other monies owed as a result of an employer engaging in employeemisclassification.
(3) Assess administrative civil penalties for instances of employee misclassification as set forth in G.S. 143-765.
(4) Refer contested penalty assessments to the Office of Administrative Hearings for an in-person hearing.
(5) Where provided by law, coordinate with relevant State agencies and District Attorneys’ offices in the prosecution of employers and individuals who fail to pay civil assessments or penalties assessed as a result of the employer or individual’s involvement in employee misclassification.
(6) Provide all relevant information pertaining to each instance of reported employee misclassification to the North Carolina Department of Labor, the North Carolina Department of Revenue, the North Carolina Division of Employment Security, and the North Carolina Industrial Commission to facilitate investigation of potential violations of Chapter 143, 96, 97, or 105 of the General Statutes.
(7) Create a publicly available notice that includes the definition of employee misclassification and indicates the civil penalties provided for in G.S. 143-765.
(8) Develop methods and strategies for information sharing between State agencies in order to proactively identify possible instances of employee misclassification.
(9) Develop methods and strategies to educate employers, employees, and the public about proper classification ofemployees and the prevention of employee misclassification.
(10) Establish training modules and materials pertaining to the investigation and enforcement of incidents of employeemisclassification for use by State agency investigators and law enforcement agencies.
(b) The director shall appoint an informal advisory council to advise the director on issues within the jurisdiction of theDivision. The members of the advisory council shall include, at a minimum:
(1) The following officers or the officer’s designee:
a. Commissioner of Labor.
b. Secretary of Revenue.
c. Chairman of the Industrial Commission.
d. Assistant Secretary of Commerce for the Division of Employment Security.
(2) A representative of workers in this State.
(3) A representative of employers in this State.
The members of the council shall not receive compensation, per diem, or expense reimbursement from the State Treasury for their service on the advisory council.
(c) No later than October 1 of each year, the Division shall publish annually to the Office of the Governor and to the Joint Legislative Commission on Governmental Operations a report of the administration of this Article, together with any recommendations as the Division deems advisable. This report shall include, at a minimum, the number of reports ofemployee misclassification received, the number and amount of back taxes, wages, benefits, penalties, or other monies assessed, the amount of back taxes, wages, benefits, penalties, or other monies collected, and the number of cases referred to each State agency.
” § 143-764. Determination of independent contractor status.
(a) The following factors shall be considered in determining whether an individual is an independent contractor for purposes of this Article:
(1) Whether the individual is engaged in an independent business, calling, or occupation.
(2) Whether the individual is to have the independent use of his or her special skill, knowledge, or training in the execution of the work.
(3) Whether the individual is doing a specified piece of work at a fixed price or for a lump sum or upon a quantitative basis.
(4) Whether the individual is not subject to discharge because he or she adopts one method of doing the work rather than another.
(5) Whether the individual is not in the regular employ of the other contracting party.
(6) Whether the individual is free to use such assistants as he or she may think proper.
(7) Whether the individual has full control over such assistants.
(8) Whether the individual selects his or her own time.
(b) The presence of one or more of the foregoing factors is not controlling, nor is the presence of all of the foregoing factors required in determining whether an individual is an independent contractor.
(c) The provisions of this section are intended to codify the holding in Hayes v. Board of Trustees of Elon College, 224 N.C. 11 (1944). Other factors consistent with that holding may also be considered in making a determination under this section.
” § 143-765. Employee misclassification prohibited; civil penalties; repeated instances of misclassification.
(a) Employee misclassification is prohibited.
(b) Any employer who is found by the Division to have engaged in employee misclassification after being assessed any back taxes, wages, benefits, penalties, or other monies by any State agency as a result of misclassifying one or moreemployees within the previous three calendar years shall be assessed a civil penalty of no greater than one thousand dollars ($1,000) per misclassified employee for any future instances of employee misclassification. In determining the amount of the penalty to be assessed, the Division shall consider the degree of willfulness or negligence by the employer in engaging in the employee misclassification. The penalty herein provided shall be assessed by the Divisionadministratively, with the right to a hearing conducted by the Industrial Commission if requested in writing within 30 days after notice of the assessment of the penalty. Enforcement of the penalty shall be made by the Office of the Attorney General. The clear proceeds of penalties provided for in this subsection shall be remitted to the Civil Penalty and Forfeiture Fund in accordance with G.S. 115C-457.2.
(c) Nothing in this section shall be construed to create a private right of action, at law or in equity, for the activities prohibited by this Article….

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