Unemployment tax critics slam Labor study Lack of survey data questioned

AUGUSTA – Critics of Maine labor laws defining whom employers should be paying unemployment taxes on are now also taking aim at a state study that was supposed to help clarify the issue.

Lawmakers grappling with the question last year ordered a state study of employers, workers and labor lawyers to help determine who should be classified as an employee and who should be considered an independent contractor.

“We were asked by the Legislature to get better data on this,” Labor Commissioner Laura Fortman said this week. “We sent letters to 102,000 people that had filed a [tax form] 1099 and we sent the questionnaire to 40,000 employers on our list and we sent letters to lawyers that practice in this area. I think we got a good response.”

Critics disagree, however, pointing out that only 1,275 employers and 3,142 Mainers who had reported some self-employment income responded to the survey. Also, only 6 of the 221 lawyers surveyed responded.

Rep. Janet Mills, D-Farmington, a longtime critic of the Department of Labor’s current definition of an independent contractor, said the lack of response wasn’t surprising.

“It’s that old saying about I am from the government and I am here to help you,” said Mills. “People aren’t going to answer this; they will fear the department will come after them.”

Fortman said the questionnaires were clearly marked as confidential and there was not an attempt by the agency to identify anyone who responded to the survey. She said the department was directed to do the study within its resources, so she didn’t have the option of contracting the survey out to an independent source such as the University of Maine.

Under current law, the Department of Labor assumes that a person getting paid by a business or company is an employee of the company and subject to the unemployment tax, unless they meet the criteria of an independent contractor. At issue is how DOL is interpreting what is called the “ABC test” which is used to determine whether a worker is an employee or an independent contractor.

The law states that 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 of the business or company.

One example of where the state and some businesses disagree over the interpretation of the law involves flooring companies that subcontract the installation of carpeting or other flooring sold at their retail stores. The state considers such workers subject to the unemployment tax which companies have to pay.

“DOL is telling these stores that have been doing this for years that they have to hire employees, not subcontract the work,” said Jim McGregor, executive vice president of the Maine Merchants Association. “Many of these small stores can’t afford to do it, it’s that simple.”

Mills said there are many examples such as the one cited by McGregor, and she has introduced legislation that would change the way the Department of Labor interprets the unemployment law. She charges it is being applied too strictly by the agency and that it is damaging to an important sector of the economy.

Fortman opposed a similar bill sponsored by Mills last year that led to the legislative resolve directing the agency to conduct the survey. She said most states use the same “ABC” test as Maine does in determining whether an employer is responsible for paying the unemployment tax. She said all of the New England states use the test and apply it the same way.

The merchants association is not the only business group concerned about the issue. Both Dana Connors, president of the Maine State Chamber of Commerce, and David Clough, Maine director of the National Federation of Independent Businesses, said they have heard complaints and concerns from their members.

“What is disturbing to me is the department did not bring everybody together and see if there is some language that everybody could agree on,” McGregor said.

Fortman said there was such a discussion a few years ago that was not fruitful. She said the survey has bolstered her contention that the current definition is working.

“It isn’t working,” Mills countered. “It’s unfair and it is too complicated and needs to be revised along the lines of the standard used by the workers’ compensation commission.”

Fortman said the department is simply trying to enforce the existing law fairly for all employers. She said if someone is not paying his fair share of the taxes that fund the unemployment system, some other employer is paying more than his fair share of the taxes.

Mills’ legislation has yet to be printed, so a public hearing has yet to be scheduled on her legislation.