TN Bills Aim To Combat Misclassification

Liz Carey

Nashville, TN (WorkersCompensation.com) – Legislators in Tennessee hope new legislation will address that state’s problem with construction companies misclassifying workers as independent contractors.

The legislation comes after a report from the Tennessee Bureau of Workers’ Compensation Compliance Program found that companies are putting construction workers at risk through misclassification and other practices that deny protections to workers.

HB 2628 and SB 2404, sponsored by Sen. Sara Kyle (D-Memphis) and Rep. Dwayne Thompson (D-Cordova), would change current workers’ compensation laws in Tennessee to give the Bureau of Workers’ Compensation more powers to punish companies that are non-compliant regarding workers’ compensation requirements including issuing stop-work orders. Those orders would also apply to successor businesses, if the law passes.

Both bills passed their first readings and were sent to their respective committees.

The legislation is part of the recommendations outlined in the Bureau of Workers’ Compensation 2020 Compliance Report. In it, officials said dishonest companies put workers at risk by:

  • Failing to provide coverage for out-of-state workers;
  • Misclassifying employees;
  • Closing their businesses when their practices are uncovered or when an employee is hurt and reopening under a different name to avoid penalties;
  • Disregarding notices of assessment from the Compliance Program penalties;
  • Disappearing, and;
  • Utilizing labor brokers

The bureau said in the report that in 2018/2019, the bureau’s compliance program investigated 77 employers and assessed over $4.5 million in penalties, most of which were for “lack of workers’ compensation insurance coverage for employees.”

However, the report also noted that of that, the compliance program was only able to collect $1.8 million.

But officials think what they are seeing is only the beginning.

“It’s sort of like an iceberg,” Amanda Terry, the bureau’s director of compliance, told the Nashville Scene. “What we believe that we’re seeing is only 10 percent — the part that’s above the surface.”

The report also noted that some employers use “labor brokers” to find workers.

“During the course of investigations, Compliance Program staff discovered some employers use “labor brokers” to meet business needs. Similarly, utilizing labor brokers allows the employer to avoid paying premiums on employees. It is estimated that insurance carriers lost as much as $296.1 million in 2016 as a result of uncollected workers’ compensation premiums,” the report said. “The state also loses premium taxes of 4.4% when premiums are not paid. The use of labor brokers often creates compliance issues because no one pays workers’ compensation on the worker. These labor brokers are more likely to engage in employee misclassification, either by underreporting the number of workers on their payroll or by misrepresenting the work being done by employees.”

Misclassifying workers, using labor brokers and other practices give the unlawful companies an estimated advantage, officials say. Because they are paying less in overhead, they are able to underbid law-abiding contractors, Victor White, director of Mid-South Carpenters Regional Council, a union representing carpenters, told the Nashville Scene.

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