Lawmakers seek help in defining ’employee’

AUGUSTA – The state is seeking help from businesses and self-employed Mainers to assist lawmakers in coming up with a uniform definition for the word “employee.”

The definition can affect who pays unemployment taxes. Also at stake, depending on which side of the issue people are on, are the livelihoods of some sub-contractors, such as floor installers hired by the retailers who sell flooring, or the integrity of the state’s unemployment system.

“There are independent contractors out there who want to be independent and not part of the unemployment insurance system,” said Rep. Janet Mills, D-Farmington, in a recent interview. “It still does not seem right to me that there are at least four different definitions of employee.”

Last session Mills introduced a bill to change the way the Department of Labor defines an employee. Mills, who is preparing similar legislation for the coming session, believes the department’s set of standards is significantly different from that used by Maine Revenue Services, the federal Internal Revenue Service or the state’s workers’ compensation laws.

Instead of taking action on Mills’ bill last session, the Legislature ordered a study of the issue, which the department has under way.

“Last week we sent a letter to the 41,000 employers we have in our own database asking that they participate in an online survey,” said Vanessa Santarelli, an assistant to Labor Commissioner Laura Fortman. “We will be sending a similar letter to 102,000 businesses and individuals that filed a Schedule C on their income taxes to try and get comments from the self-employed.”

She said the second mailing likely will result in a lot of duplicate requests to employers because the tax form not only is used by the self-employed, it also is used by sole proprietors of businesses.

“It took us longer to get the second letter out than we expected,” she said. “We had to get an agreement with the IRS to get the list to send to those that filed a C form on their taxes.”

The survey asks 25 questions about how employers use contract workers and how familiar they are with the laws for determining when a worker is considered an employee for unemployment, workers’ compensation and for income tax purposes.

“We are hoping to gather data for the Legislature on the use of workers,” Santarelli said. “There was a lot of anecdotal information before the [labor] committee last session, but not a lot of data.”

Jim McGregor, executive vice president of the Maine Merchants Association, said that in the last legislative session, business owner after business owner went before the Legislature’s Labor Committee to complain about how the Labor Department is interpreting the law defining who is an employee under the state unemployment law. The biggest concern involves whether workers who have long been considered sub-contractors – such as flooring installers – should now be considered employees.

“This is a very big issue for some of our members,” he said. “I think it will generate the sort of comments employers made last time and I hope this time the law gets changed.”

Mills said the Labor Department is wrong in the way it is interpreting what is known as the “ABC” test.

According to the department, in order to prove someone is an independent contractor and not an employee, an employer must prove that the individual performing the service has been, and will continue to be, free from control or direction over the performance of the service, both under the contract of service and in fact; and that service is either outside the usual course of the business for which the service is performed, or the service is performed outside of all the places of business of the enterprise for which the service is performed; and the individual is customarily engaged in an independently established trade, occupation, profession or business.

Labor Commissioner Laura Fortman said that has been the law and its interpretation for years and it should be continued because it is fair.

Fortman said the proposed legislation would weaken the state law that protects workers and provides unemployment benefits. She said the independent contractor classification was being used by some businesses to avoid paying unemployment taxes, with over a thousand claims a year filed by workers for whom no wages have been reported by an employer.

Fortman said the department is simply trying to enforce the existing law fairly for all employers.

“It’s our responsibility to make sure the trust fund is solvent,” she said, “and that all employers pay their fair share into the fund to provide a safety net for workers that are laid off.”

She said if someone is not paying their fair share of the tax that funds the unemployment system, some other employer is paying more than their fair share of the taxes.

Mills disagrees. She believes the definitions need to change to match the evolving nature of Maine’s economy.

“The economy has drastically changed since 1935,” she said. “We need to bring this law up to date.”