Employee misclassification only tiny fraction of labor investigations in Nevada
Legislation strengthening misclassification law is supported by various labor unions, including AFL-CIO and Personal Care Association of Nevada (PCAN). (Photo: Ronda Churchill)
Despite increased attention at the national and state level on the issue of employee misclassification, Nevada’s labor commissioner has undertaken just 15 investigations into potential violations over the past three years.
That number was provided to the Current upon request by the Nevada Department of Business & Industry, which houses the Office of the Labor Commissioner.
Employee misclassification is defined as the practice of hiring workers as independent contractors when they should be considered employees. This allows businesses to avoid their share of employment and tax laws, such as workers’ compensation, unemployment insurance and payroll taxes.
A majority of states, Nevada included, follow guidelines known as the ABC test, which presumes that workers should be classified as employees unless they meet three specific requirements, including being “free from the entity’s control or direction in performing his work.”
Researchers believe employee misclassification is widespread and not confined to specific industries. One widely cited 2000 study commissioned by the U.S Department of Labor found that between 10% to 30% of audited employers misclassified some workers.
The issue has received increased attention in recent years, especially due to the so-called “gig economy” and business models such as Uber and Lyft. Such companies have been successful in carving for themselves exceptions to ABC Act standards. (In Nevada, lawmakers defined rideshare drivers as independent contractors.)
Labor unions and progressive groups are currently lobbying for federal adoption of the ABC test as part of the recently reintroduced PRO Act.
In Nevada, labor unions representing skilled trades have pushed back on employee misclassification and the use of temp agencies within the construction industry. The state also established an employee misclassification task force on the issue in 2019.
But that increased attention hasn’t translated to a high number of complaints filed with Nevada’s Office of the Labor Commissioner.
Teri Williams, a public information officer for the department, said she could not provide additional details on the 15 investigations the labor commissioner has conducted “due to the nature of (the office’s) legacy case management software.” But she noted that “in a manual review by the chief investigator” it was found that most of the companies found violating employee misclassification laws were penalized for a separate labor violation.
Williams noted that labor commission investigations are sparked by complaints filed by workers, “so the numbers involving misclassification is what is being reported.”
Latest legislative efforts
Senate Bill 145 received its first committee hearing Monday in Senate Commerce and Labor. The bill stems from a series of recommendations made by the 2019 task force.
As introduced and recommended by the task force, SB 145 would have set the administrative penalty at $5,000 from the first offense, regardless of whether the business misclassified the worker intentionally or unintentionally.
However, a conceptual amendment presented by state Sen. Roberta Lange would change the penalty structure so that a business receives a warning on their first offense, and fees are imposed only on subsequent offenses and only if the business “willfully” misclassified an employee.
That’s a change from current law, wherein an employer who unintentionally misclassifies an employee receives a warning on their first offense, an employer who willingly misclassifies an employee receives a $2,500 fee on their first offense, and subsequent offenses of willingly misclassifying someone receive a $5,000 fee.
The changes were clearly influenced by feedback from at least two chambers of commerce. The Vegas Chamber and National Federation of Independent Business, as well as the Nevada Trucking Association, all indicated during Monday’s hearing that they had concerns with strengthening the penalties but are neutral on the bill with the conceptual amendment.
SB 145 also changes where the penalty money goes. Currently, the money is deposited into the state general fund. With SB 145, that money would go to a dedicated account that the labor commissioner could use to pay for additional staff.
State Sen. Skip Daly said he supports agencies and departments recouping the cost of investigations but opposes allowing the labor commissioner to directly fund its own office with the penalties it issues.
“It’s bad policy to fund it like that,” he added.
The Office of the Labor Commissioner told the Current it could not provide the amount of employee misclassification penalties it has assessed companies because of software limitations. But she called employee misclassification complaints and penalties “statistically insignificant” compared to overall labor violations, which include prevailing wage and other wage claims.
SB 145 received enthusiastic support from various labor unions, including AFL-CIO and Personal Care Association of Nevada (PCAN).
PCAN noted in a letter of support that the independent contractors used by some personal care industries “may not be trained and background checked, nor in compliance with what is required of caregivers in (state law).”
Greg Esposito, a lobbyist for Nevada State Pipe Trades, said the bill will strengthen Nevada’s reputation as a business-friendly state by signaling to legitimate businesses that they won’t be undercut in the bidding process by bad actors who are cutting corners by misclassifying employees.
Addressing concerns about the labor commissioner funding her own office, Esposito noted that law enforcement agencies across the state and country do just that with tickets they issue.
The Senate committee took no action on SB 145 Monday. The bill has until April 14 to make it out of the committee before dying.
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