Legislature(2009 - 2010)BARNES 124
03/20/2009 03:15 PM LABOR & COMMERCE
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* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 22-WORKERS' COMPENSATION: SUBCONTRACTORS 3:22:51 PM CHAIR OLSON announced that the next order of business would be HOUSE BILL NO. 22, "An Act relating to requiring subcontractors who do not have employees and who are acting as independent contractors to secure payment for workers' compensation, and to requiring subcontractors who fail to secure payment of workers' compensation to pay additional premiums incurred by contractors because of that failure." 3:22:56 PM REPRESENTATIVE HARRY CRAWFORD, Alaska State Legislature, as one of the joint prime sponsors of HB 22, related his long-standing passion for this issue. He offered his belief that HB 22 would "level the playing field." He explained that currently a number of subcontractors claim to be owner/operators and not employees. He opined that some subcontractors have a legitimate claim, but others do not. This bill removes the uncertainty, and requires everyone who subcontracts to a general contractor to obtain workers' compensation insurance. CHAIR OLSON announced that a committee substitute (CS) is forthcoming. He offered his hope that the CS would pass and become the nationwide model. PAUL GROSSI, Staff, Representative Harry Crawford, Alaska State Legislature, stated that he has reviewed the proposed committee substitute. He opined that the committee substitute would "work." 3:26:15 PM ALAN WILSON, Owner, Alaska Renovators, Inc., stated that he is a Juneau-based homebuilder. He related that this issue has been around for some time. He explained that the primary issue is that in the homebuilding industry, contractors use numerous sole proprietor subcontractors such as carpet, tile, cabinetmakers, and other subcontractors. He indicated that when subcontractors are licensed, they can exempt themselves from workers' compensation insurance. He further explained that the insurance industry requires contractors to obtain certificates of insurance from all subcontractors. He said, "That's the problem." He highlighted that some subcontractors do not have the certificates and bill the contractor who must pay based on the amount of the invoice. He offered that he has not specifically reviewed the "Tennessee Language" incorporated in the proposed committee substitute, but believes it will take the "gray area out of this issue and resolve it once and for all." 3:28:01 PM BRONSON FRYE, Business Representative, Painters & Allied Trades Local 1959 (IUPAT Local 1959), speaking on behalf IUPAT Local 1959, offered support for HB 22, which requires workers' compensation insurance for sole proprietors or owner/operators. He explained that his organization represents worker in trades such as painting, drywall taping, and floor covering. He related that he supports the bill since it has become standard operating procedure for contractors in painting, drywall finishing, and floor covering industry to bid large-scale commercial construction projects and re-subcontract the project to entire crews comprised of owner/operators. He emphasized that sole proprietors can waive the right to workers' compensation. However, when the entire workforce is made up of owner/operators without workers' compensation, the contractor has a huge bidding advantage. He opined that the practice is "killing the industry" by making it almost impossible for legitimate contractors to compete. He offered his belief that HB 22 would provides assurance that laborers will be properly insured. Additionally, contractors bidding work will compete in a fair and open playing field. Furthermore, he stressed that the practice of subcontracting to multiple tiers of "so called contractors" in an effort to avoid workers' compensation insurance and taxes has become commonplace in construction. He recalled a Craigslist advertisement on February 12, 2009, that advertised for independent contractors for commercial work in Juneau. He said, "Under the requirements, it says experience not necessary, onsite training is provided. And then, under compensation it says, hourly range $9-11 per hour. Right underneath that it says, 'This is a contract job'." He pointed out that he has worked in the construction field "his whole life." He opined that he has never encountered a legitimate subcontractor working under a legitimate subcontract with zero experience earning $9 per hour. He said, "I think anyone would agree that someone working in commercial construction with no experience working for $9 per hour is far more likely to be an employee of some sort and by no means a true independent contractor." He offered that he mentioned the Craigslist advertisement to demonstrate how brazen some contractors have become in their misclassification of employees in an effort to avoid workers' compensation insurance as well as any taxes a contractor would normally match for their employees. He reiterated his support for HB 22 and applauded Representative Crawford for introducing the bill. 3:31:05 PM CHRIS GREGG, Painters and Allied Trades Local 1959 (IUPAT Local 1959), speaking on behalf of IUPAT Local 1959, offered support for HB 22. He stated he is affiliated with IUPAT, which represents worker in trades such as painting, drywall taping, and floor covering in the construction arena. He explained that in recent years the market has been "ravaged" by contractors who bid major jobs and then lease out the work to large crews of independent contractors. He further explained that the independent contractors are not required to pay workers' compensation insurance or federal insurance. He emphasized that this gives the contractor the ability to bid work without considering the cost of workers' compensation insurance. Thus, the contractor has a "considerable edge" against any contractor who pays for insurance for his/her employees as required by state law. He offered his belief that workers' compensation insurance is calculated at nearly 30 percent of the payroll costs, this could mean that an unscrupulous contractor can shave thousands of dollars, or hundreds of thousands of dollars from bid proposals by misclassifying his/her workers. He said, "The misclassification of employees has become standard operating procedure in the taping, painting, and floor covering markets in Alaska. And it must come to an end if the law-abiding, honest contractors are going to have any chance at being competitive." He applauded Representative Crawford's efforts on this bill. He stated that the IUPAT fully supports HB 22. 3:33:02 PM DARRYL KLOEPFER, Vice-President, Pacific Partition Systems, stated that his business has been in Alaska since 1976. His business predominantly contracts for metal stud priming gypsum wallboard, drywall taping, and painting subcontractors. He stated that he has been out of the taping and painting for approximately 10 years as a result subcontractors not being classified as employees. He opined that his business was at a disadvantage amounting to an approximately 30 percent disadvantage in bid awards. He thanked the prime sponsor of HB 22. He related that he fully supports HB 22. He pointed out that he is currently involved in estimating significant amounts of state and municipal government projects. He indicated that he is currently being asked by general contractors who support the "independent subcontractor trade force" to separate out the bid estimate for metal studs and drywall due to an influx of subcontractors who install gypsum wall board. He explained that he must separate out the costs when bidding. He opined that he is in jeopardy when bidding commercial projects, which is a very frustrating situation. He thanked the legislature for reviewing the definition of employee versus independent subcontractor. He stated he reviewed some of the Internal Revenue Service (IRS) tax laws. He said, "None of these independent contractors that we're forced to compete against have a category defined by the IRS as a profit and loss exposure. There is no loss exposure to these individuals. They're being paid, basically on an hourly basis." He concluded by reiterating his support for HB 22. MICHAEL GALIOTO agreed with his colleagues. 3:36:18 PM KEITH MONTGOMERY, Carpenters Local 1281, on behalf of the Carpenters Local 1281, stated that his union is affiliated with the United Brotherhood of Carpenters. He related that his union represents carpenters, drywall finishers, metal set framers, and various trades that fall within the scope of carpentry. He said, "Quite frankly, it's a misclassification of workers." He related his experience that tiers of subcontractors are independent contractors who buy the material, direct the work, and pay workers, sometimes "cash under the table." He said, "Basically, it's gaming the system." He opined that when a worker gets injured on the job and receives hospital care and is not covered, the costs are often absorbed by the hospital. He related that not providing workers' compensation insurance is unfair to legitimate businesses. Further, some workers sign up as independent contractors and are not paid. He offered that HB 22 is a means to "level the playing field." 3:38:12 PM CHAIR OLSON announced that HB 22 will be held over for further consideration. He anticipated that a committee substitute would be forthcoming. 3:38:37 PM The committee took an at-ease from 3:38 p.m. to 3:39 p.m.