Demoted: new laws clamp down on worker misclassification.

• Author: Haraldsen, Tom
• Position: EntrepreneurEdge

Imagine being an employer in a very competitive trade such as construction. The best workers and most skilled laborers are in heavy demand. Like everyone else, your workers want to make as much money as possible, and you as a business owner want to maximize your investment.

Now, imagine if your best efforts were thwarted by a competitor who was cheating--both you and the system. You won't have to imagine very hard--it's been going on in Utah for years.

Misclassification of workers as "owners" in order to avoid paying payroll tax and workers compensation premiums has been a challenge in Utah's construction industry in particular. This problem was finally addressed by passage of two bills during the 2011 Utah State Legislature.

Playing by the Rules

Sen. Karen Mayne (D-West Valley, Kearns) introduced and successfully led the fight for passage of SB 11--Worker Classification Coordinated Enforcement, and SB 35--Construction Licensees Related Amendments. Her goal was simply to level the playing field for contractors looking to hire construction workers.

"I've known for a long time that there have been issues with misclassification," Mayne says. "With the recession really hurting many in the construction trades, I was getting calls from employers who really needed help to protect their businesses and make sure everyone was playing fair."

Case in point: a small construction company, needing laborers, hires them as owners, * meaning neither party has to pay for unemployment insurance or into the Workers Compensation Fund. That same employer may also choose not to deduct taxes, telling the laborer that "you're smart, you'll pay your taxes." On the surface, this move circumvents the financial requirements of both the worker and his or her boss to pay into those funds, thus making for larger take home paychecks. At a time when that laborer might be desperate to support a family, the arrangement seems attractive, and they take the position.

This deliberate misclassification of a laborer has allowed unethical companies to have a huge advantage in hiring workers away from contractors who have worked within the law.

Not any more. SB 35, a 59-page, highly scrutinized new law that was debated and amended a couple of different times before its passage, defines what constitutes those considered employers enumerated, those who are regularly employed and those who are statutory employees. It lays out the elements and penalties involved in workers compensation...