BILL REQ. #:  H-1005.3 

Read first time 01/31/11.   Referred to Committee on Labor & Workforce Development.

     AN ACT Relating to the underground economy by addressing the loss in state revenue through misclassification of workers as independent contractors in the construction industry; adding a new section to chapter 18.27 RCW; creating a new section; and prescribing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   The legislature finds that the state loses over one hundred million dollars a year in taxes due to underground economy construction activity, causing great inequity to law-abiding businesses and taxpayers. The legislature further finds that an employer in construction is required to pay industrial insurance and unemployment taxes for a worker unless a seven-part independent contractor test is met, which test includes that the worker is free from direction and control and has his or her own books and records. The legislature finds that some contractors avoid taxes by engaging multiple contractors to work on the same task and treating the contractors as exempt independent contractors rather than hiring and paying taxes on these persons as covered workers. The legislature finds, however, that if multiple contractors are working on the same task on a job site, the contractors must be working under direction and control such that they are not exempt independent contractors but are, in fact, covered workers.
     The legislature finds that the seven-part test is and should continue to be applied in investigations of underground economy activity in the construction industry. However, the legislature also finds that prohibiting up front certain contracting which by its nature creates a situation in which taxes due are not paid will provide clarity to contractors and provide an additional cost-effective means to reduce the underground economy. By enacting section 2 of this act, the legislature intends to define the prohibited contracting narrowly to assure no legitimate contracting is prohibited. The legislature intends that nothing in section 2 of this act prohibits a contractor from engaging more than two independent contractors who have no covered workers to work on the same task so long as those contractors are treated as covered workers.

NEW SECTION.  Sec. 2   A new section is added to chapter 18.27 RCW to read as follows:
     (1) A contractor commits a violation under this chapter and is subject to an infraction if the contractor engages more than two independent contractors to work on a single job site who:
     (a) Are working on the same task;
     (b) Bring no workers to that job site subject to the mandatory coverage of Title 51 RCW; and
     (c) Are not being treated by the contractor as covered workers under Title 51 RCW.
     (2) A contractor has the burden of proof to show that independent subcontractors engaged by the contractor working in the same trade or occupation on a single job site are not working on the same task.
     (3)(a) A contractor found to have committed an infraction under this section shall be assessed a fine of:
     (i) Five hundred dollars for a first offense;
     (ii) Two thousand five hundred dollars for a second offense; and
     (iii) Five thousand dollars for a third or subsequent offense.
     (b) For a third or subsequent offense under this section, the director shall also suspend the contractor's certificate of registration for one year.
     (c) In addition to any other penalty, the director shall suspend the registration of the contractor until payment of penalties assessed under this section that have become final and are paid in full.
     (4) For purposes of this section:
     (a) "Job site" means: (i) A single physical address; or (ii) multiple buildings or addresses or both, if the addresses or buildings are under the same contract with the general contractor.
     (b) "Trade or occupation" means a trade or occupation as determined by the department of labor and industries under chapter 39.12 RCW.