Independent Contractor Compliance Blog - by Collabrus™

When last I reported this Nebraska proposal it was just a bill-now it’s a law!

Nebraska’s governor signed into law new legislation that cracks down on employee misclassification. A press release indicated that Nebraska plans to initially target the construction and trucking industries that have a history of misclassifying workers. However, such laws apply to all employers.

This is one of the toughest misclassification laws in the nation.

The law allows the state to fine employers $500 per day for the first misclassification, then $5,000 per day for each additional employee misclassified. These fines are in addition to any payroll and income taxes, interest and other penalties assessed, or possible criminal violations (see below).  It doesn’t take much imagination to visualize such fines shutting down a company.

Politicians, bureaucrats and unions say it’s about “leveling the playing field.” However, it’s really about generating revenue during tough economic times.

I’ve reported numerous times that politicians like to look as if they are taking the high ground when increasing tax collections. The most common cliché used at both state and federal levels today when increasing revenue collection with tougher IC compliance is “leveling the playing field.” Nebraska is no exception.

The “leveling the playing field” argument goes like this:

Employers that misclassify workers can avoid 30% of payroll costs, giving them an unfair advantage in bidding for jobs and in profit making. This unfair advantage drives honest, tax paying employers out of business. We must level the playing field so all employers are on equal footing in competing for business.

To prove my point: Nebraska State Senator Steve Lathrop, who introduced the bill, said the measure is mainly “about leveling the playing field so the honest contractor(s)…can compete with the person who is misclassifying employees…”

The more revenue argument goes like this:

• A government press release cited Nebraska State analysts’ estimates that misclassifying employees in the construction and trucking industries alone causes the state to miss out on about $5 million in tax revenue each year.
• The Teamsters Union praised the new Nebraska law, but believes misclassification cost the state between $9 million and $18 million a year in additional tax revenue.

The law encourages workers to report misclassifications and provides for sharing information with law enforcement.

The law establishes a phone hot line and website administered by Nebraska’s Department of Labor for workers and competing companies to report suspected violations. The department will investigate complaints and share results of the investigation with Nebraska’s Department of Revenue for possible assessment of unpaid taxes. The law also allows for sharing information with law enforcement to investigate other violations.

The Perfect IC Compliance Storm

This is only the latest example of the IC Perfect Compliance Storm that is sweeping across the nation. You need to get your ship in order before the storm hits you. Collabrus can help!