BILL REQ. #:  S-1097.1 

Read first time 01/27/09.   Referred to Committee on Labor, Commerce & Consumer Protection.

     AN ACT Relating to the recommendations of the joint legislative task force on the underground economy in the construction industry; amending RCW 18.27.030, 18.27.020, 18.27.060, 60.28.010, 60.28.040, and 50.12.070; adding new sections to chapter 18.27 RCW; adding a new section to chapter 35.21 RCW; adding a new section to chapter 35A.21 RCW; adding a new section to chapter 36.01 RCW; adding a new section to chapter 39.12 RCW; adding a new section to chapter 51.04 RCW; adding a new chapter to Title 43 RCW; prescribing penalties; and providing an effective date.

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

Sec. 1   RCW 18.27.030 and 2008 c 120 s 1 are each amended to read as follows:
     (1) An applicant for registration as a contractor shall submit an application under oath upon a form to be prescribed by the director and which shall include the following information pertaining to the applicant:
     (a) Employer social security number.
     (b) Unified business identifier number.
     (c) Evidence of workers' compensation coverage for the applicant's employees working in Washington, as follows:
     (i) The applicant's industrial insurance account number issued by the department;
     (ii) The applicant's self-insurer number issued by the department; or
     (iii) For applicants domiciled in a state or province of Canada subject to an agreement entered into under RCW 51.12.120(7), as permitted by the agreement, filing a certificate of coverage issued by the agency that administers the workers' compensation law in the applicant's state or province of domicile certifying that the applicant has secured the payment of compensation under the other state's or province's workers' compensation law.
     (d) Employment security department number.
     (e) Unified business identifier (UBI) account number may be substituted for the information required by (c) and (d) of this subsection if the applicant will not employ employees in Washington.
     (f) Type of contracting activity, whether a general or a specialty contractor and if the latter, the type of specialty.
     (g) The name and address of each partner if the applicant is a firm or partnership, or the name and address of the owner if the applicant is an individual proprietorship, or the name and address of the corporate officers and statutory agent, if any, if the applicant is a corporation or the name and address of all members of other business entities.
     (h) Photo identification.
     (i) Certification that the applicant has attended training approved by the department on state law.
     (2) The information contained in such application is a matter of public record and open to public inspection.
     (((2))) (3) The department may verify the workers' compensation coverage information provided by the applicant under subsection (1)(c) of this section, including but not limited to information regarding the coverage of an individual employee of the applicant. If coverage is provided under the laws of another state, the department may notify the other state that the applicant is employing employees in Washington.
     (((3))) (4)(a) The department shall deny an application for registration if: (i) The applicant has been previously performing work subject to this chapter as a sole proprietor, partnership, corporation, or other entity and the department has notice that the applicant has an unsatisfied final judgment against him or her in an action based on work performed subject to this chapter or the applicant owes the department money for penalties assessed or fees due under this chapter as a result of a final judgment; (ii) the applicant was an owner, principal, or officer of a partnership, corporation, or other entity that either has an unsatisfied final judgment against it in an action that was incurred for work performed subject to this chapter or owes the department money for penalties assessed or fees due under this chapter as a result of a final judgment; (iii) the applicant does not have a valid unified business identifier number; (iv) the department determines that the applicant has falsified information on the application, unless the error was inadvertent; or (v) the applicant does not have an active and valid certificate of registration with the department of revenue.
     (b) The department shall suspend an active registration if (i) the department has determined that the registrant has an unsatisfied final judgment against it for work within the scope of this chapter; (ii) the department has determined that the registrant is a sole proprietor or an owner, principal, or officer of a registered contractor that has an unsatisfied final judgment against it for work within the scope of this chapter; (iii) the registrant does not maintain a valid unified business identifier number; (iv) the department has determined that the registrant falsified information on the application, unless the error was inadvertent; or (v) the registrant does not have an active and valid certificate of registration with the department of revenue.
     (c) The department may suspend an active registration if the department has determined that an owner, principal, partner, or officer of the registrant was an owner, principal, or officer of a previous partnership, corporation, or other entity that has an unsatisfied final judgment against it.
     (((4))) (5) The department shall not deny an application or suspend a registration because of an unsatisfied final judgment if the applicant's or registrant's unsatisfied final judgment was determined by the director to be the result of the fraud or negligence of another party.

NEW SECTION.  Sec. 2   A new section is added to chapter 18.27 RCW to read as follows:
     The department shall approve training on state law for applicants for contractor registration.

NEW SECTION.  Sec. 3   A new section is added to chapter 18.27 RCW to read as follows:
     The department shall work with representatives of the business community to explore the need for continuing education for contractors.

NEW SECTION.  Sec. 4   A new section is added to chapter 18.27 RCW to read as follows:
     A contractor must maintain and have available for inspection by the department a list of all direct subcontractors and a copy of their certificate of registration.

Sec. 5   RCW 18.27.020 and 2007 c 436 s 2 are each amended to read as follows:
     (1) Every contractor shall register with the department.
     (2) It is a gross misdemeanor for any contractor to:
     (a) Advertise, offer to do work, submit a bid, or perform any work as a contractor without being registered as required by this chapter;
     (b) Advertise, offer to do work, submit a bid, or perform any work as a contractor when the contractor's registration is suspended or revoked;
     (c) Use a false or expired registration number in purchasing or offering to purchase an advertisement for which a contractor registration number is required;
     (d) Transfer a valid registration to an unregistered contractor or allow an unregistered contractor to work under a registration issued to another contractor; or
     (e) Subcontract to or use an unregistered contractor.
     (3) It is not unlawful for a registered contractor to employ an unregistered contractor who was registered at the time he or she entered into a contract with the registered contractor, unless the registered contractor or his or her representative has been notified in writing by the department of labor and industries that the contractor has become unregistered.
     (4) All gross misdemeanor actions under this chapter shall be prosecuted in the county where the infraction occurs.
     (5) A person is guilty of a separate gross misdemeanor for each day worked if, after the person receives a citation from the department, the person works while unregistered, or while his or her registration is suspended or revoked, or works under a registration issued to another contractor. A person is guilty of a separate gross misdemeanor for each worksite on which he or she violates subsection (2) of this section. Nothing in this subsection applies to a registered contractor.
     (6) A person is guilty of a class C felony for a third or subsequent conviction for a violation under this section.
     (7) The director by rule shall establish a two-year audit and monitoring program for a contractor not registered under this chapter who becomes registered after receiving an infraction or conviction under this chapter as an unregistered contractor. The director shall notify the departments of revenue and employment security of the infractions or convictions and shall cooperate with these departments to determine whether any taxes or registration, license, or other fees or penalties are owed the state.

Sec. 6   RCW 18.27.060 and 2006 c 185 s 14 are each amended to read as follows:
     (1) A certificate of registration shall be valid for two years and shall be renewed on or before the expiration date. The department shall issue to the applicant a certificate of registration upon compliance with the registration requirements of this chapter.
     (2) If the department approves an application, it shall issue a certificate of registration to the applicant.
     (3) If a contractor's surety bond or other security has an unsatisfied judgment against it or is canceled, or if the contractor's insurance policy is canceled, the contractor's registration shall be automatically suspended on the effective date of the impairment or cancellation. The department shall mail notice of the suspension to the contractor's address on the certificate of registration by certified and by first-class mail within two days after suspension.
     (4) Renewal of registration is valid on the date the department receives the required fee and proof of bond and liability insurance, if sent by certified mail or other means requiring proof of delivery. The receipt or proof of delivery shall serve as the contractor's proof of renewed registration until he or she receives verification from the department. Photo identification is required for renewal of registration.
     (5) The department shall immediately suspend the certificate of registration of a contractor who has been certified by the department of social and health services as a person who is not in compliance with a support order or a visitation order as provided in RCW 74.20A.320. The certificate of registration shall not be reissued or renewed unless the person provides to the department a release from the department of social and health services stating that he or she is in compliance with the order and the person has continued to meet all other requirements for certification during the suspension.
     (6) For a contractor who employs plumbers, as described in RCW 18.106.010(10)(c), and is also required to be licensed as an electrical contractor as required in RCW 19.28.041, while doing pump and irrigation or domestic pump work described in rule as authorized by RCW 19.28.251, the department shall establish a single registration/licensing document for those who qualify for both general contractor registration as defined by this chapter and an electrical contractor license as defined by chapter 19.28 RCW.

NEW SECTION.  Sec. 7   A new section is added to chapter 18.27 RCW to read as follows:
     A city, town, or county shall not issue a business license to a person required to be registered under this chapter without verifying that the person is registered under this chapter and meets other requirements.

NEW SECTION.  Sec. 8   A new section is added to chapter 35.21 RCW to read as follows:
     A city shall not issue a business license to a person required to be registered under chapter 18.27 RCW without verifying that the person is registered under chapter 18.27 RCW and meets other requirements.

NEW SECTION.  Sec. 9   A new section is added to chapter 35A.21 RCW to read as follows:
     A city shall not issue a business license to a person required to be registered under chapter 18.27 RCW without verifying that the person is registered under chapter 18.27 RCW and meets other requirements.

NEW SECTION.  Sec. 10   A new section is added to chapter 36.01 RCW to read as follows:
     A county shall not issue a business license to a person required to be registered under chapter 18.27 RCW without verifying that the person is registered under chapter 18.27 RCW and meets other requirements.

NEW SECTION.  Sec. 11   A new section is added to chapter 39.12 RCW to read as follows:
     For the purposes of this chapter, an individual is not considered a laborer, worker, or mechanic when:
     (1) The individual has been, and will continue to be, free from control or direction over the performance of the service, both under the contract of service and in fact;
     (2) The service is either outside the usual course of business for which the service is performed, the service is performed outside all of the places of business of the enterprise for which the service is performed, or the individual is responsible, both under the contract and in fact, for the costs of the principal place of business from which the service is performed;
     (3) The individual is customarily engaged in an independently established trade, occupation, profession, or business, of the same nature as that involved in the contract of service, or the individual has a principal place of business for the business the individual is conducting that is eligible for a business deduction for federal income tax purposes other than that furnished by the employer for which the business has contracted to furnish services;
     (4) On the effective date of the contract of service, the individual is responsible for filing at the next applicable filing period, both under the contract of service and in fact, a schedule of expenses with the internal revenue service for the type of business the individual is conducting;
     (5) On the effective date of the contract of service, or within a reasonable period after the effective date of the contract of service, the individual has an active and valid certificate of registration with the department of revenue, and an active and valid account with any other state agencies as required by the particular case, for the business the individual is conducting for the payment of all state taxes normally paid by employers and businesses and has registered for and received a unified business identifier number from the state of Washington;
     (6) On the effective date of the contract of service, the individual is maintaining a separate set of books or records that reflect all items of income and expenses of the business which the individual is conducting; and
     (7) On the effective date of the contract of service, the individual has a valid contractor registration pursuant to chapter 18.27 RCW or an electrical contractor license pursuant to chapter 19.28 RCW.

Sec. 12   RCW 60.28.010 and 2007 c 218 s 91 are each amended to read as follows:
     (1) Contracts for public improvements or work, other than for professional services, by the state, or any county, city, town, district, board, or other public body, herein referred to as "public body", shall provide, and there shall be reserved by the public body from the moneys earned by the contractor on estimates during the progress of the improvement or work, a sum not to exceed five percent, said sum to be retained by the state, county, city, town, district, board, or other public body, as a trust fund for the protection and payment of any person or persons, mechanic, subcontractor or material supplier who shall perform any labor upon such contract or the doing of said work, and all persons who shall supply such person or persons or subcontractors with provisions and supplies for the carrying on of such work, and the state with respect to taxes imposed pursuant to Titles 50, 51, and 82 RCW which may be due from such contractor. Every person performing labor or furnishing supplies toward the completion of said improvement or work shall have a lien upon said moneys so reserved: PROVIDED, That such notice of the lien of such claimant shall be given in the manner and within the time provided in RCW 39.08.030 as now existing and in accordance with any amendments that may hereafter be made thereto: PROVIDED FURTHER, That the board, council, commission, trustees, officer or body acting for the state, county or municipality or other public body; (a) at any time after fifty percent of the original contract work has been completed, if it finds that satisfactory progress is being made, may make any of the partial payments which would otherwise be subsequently made in full; but in no event shall the amount to be retained be reduced to less than five percent of the amount of the moneys earned by the contractor: PROVIDED, That the contractor may request that retainage be reduced to one hundred percent of the value of the work remaining on the project; and (b) thirty days after completion and acceptance of all contract work other than landscaping, may release and pay in full the amounts retained during the performance of the contract (other than continuing retention of five percent of the moneys earned for landscaping) subject to the provisions of RCW 60.28.020.
     (2) The moneys reserved under the provisions of subsection (1) of this section, at the option of the contractor, shall be:
     (a) Retained in a fund by the public body until thirty days following the final acceptance of said improvement or work as completed;
     (b) Deposited by the public body in an interest bearing account in a bank, mutual savings bank, or savings and loan association, not subject to withdrawal until after the final acceptance of said improvement or work as completed, or until agreed to by both parties: PROVIDED, That interest on such account shall be paid to the contractor;
     (c) Placed in escrow with a bank or trust company by the public body until thirty days following the final acceptance of said improvement or work as completed. When the moneys reserved are to be placed in escrow, the public body shall issue a check representing the sum of the moneys reserved payable to the bank or trust company and the contractor jointly. Such check shall be converted into bonds and securities chosen by the contractor and approved by the public body and such bonds and securities shall be held in escrow. Interest on such bonds and securities shall be paid to the contractor as the said interest accrues.
     (3) The contractor or subcontractor may withhold payment of not more than five percent from the moneys earned by any subcontractor or sub-subcontractor or supplier contracted with by the contractor to provide labor, materials, or equipment to the public project. Whenever the contractor or subcontractor reserves funds earned by a subcontractor or sub-subcontractor or supplier, the contractor or subcontractor shall pay interest to the subcontractor or sub-subcontractor or supplier at a rate equal to that received by the contractor or subcontractor from reserved funds.
     (4) With the consent of the public body the contractor may submit a bond for all or any portion of the amount of funds retained by the public body in a form acceptable to the public body. Such bond and any proceeds therefrom shall be made subject to all claims and liens and in the same manner and priority as set forth for retained percentages in this chapter. The public body shall release the bonded portion of the retained funds to the contractor within thirty days of accepting the bond from the contractor. Whenever a public body accepts a bond in lieu of retained funds from a contractor, the contractor shall accept like bonds from any subcontractors or suppliers from which the contractor has retained funds. The contractor shall then release the funds retained from the subcontractor or supplier to the subcontractor or supplier within thirty days of accepting the bond from the subcontractor or supplier.
     (5) If the public body administering a contract, after a substantial portion of the work has been completed, finds that an unreasonable delay will occur in the completion of the remaining portion of the contract for any reason not the result of a breach thereof, it may, if the contractor agrees, delete from the contract the remaining work and accept as final the improvement at the stage of completion then attained and make payment in proportion to the amount of the work accomplished and in such case any amounts retained and accumulated under this section shall be held for a period of thirty days following such acceptance. In the event that the work shall have been terminated before final completion as provided in this section, the public body may thereafter enter into a new contract with the same contractor to perform the remaining work or improvement for an amount equal to or less than the cost of the remaining work as was provided for in the original contract without advertisement or bid. The provisions of this chapter 60.28 RCW shall be deemed exclusive and shall supersede all provisions and regulations in conflict herewith.
     (6) Whenever the department of transportation has contracted for the construction of two or more ferry vessels, thirty days after completion and final acceptance of each ferry vessel, the department may release and pay in full the amounts retained in connection with the construction of such vessel subject to the provisions of RCW 60.28.020: PROVIDED, That the department of transportation may at its discretion condition the release of funds retained in connection with the completed ferry upon the contractor delivering a good and sufficient bond with two or more sureties, or with a surety company, in the amount of the retained funds to be released to the contractor, conditioned that no taxes shall be certified or claims filed for work on such ferry after a period of thirty days following final acceptance of such ferry; and if such taxes are certified or claims filed, recovery may be had on such bond by the department of revenue and the material suppliers and laborers filing claims.
     (7) Contracts on projects funded in whole or in part by farmers home administration and subject to farmers home administration regulations shall not be subject to subsections (1) through (6) of this section.

Sec. 13   RCW 60.28.040 and 1985 c 80 s 1 are each amended to read as follows:
     (1) Subject to subsection (3) of this section, the amount of all taxes, increases, and penalties due or to become due under Title 82 RCW, from a contractor or the contractor's successors or assignees with respect to a public improvement contract wherein the contract price is twenty thousand dollars or more, shall be a lien prior to all other liens upon the amount of the retained percentage withheld by the disbursing officer under such contract((, except that)).
     (2) Subject to subsection (3) of this section, after payment of all taxes, increases, and penalties due or to become due under Title 82 RCW, the amount of all premiums, taxes, and penalties due or to become due under Titles 50 and 51 RCW from the contractor or the contractor's successors or assignees with respect to a public improvement contract wherein the contract price is twenty thousand dollars or more shall be a lien prior to all other liens upon the amount of the retained percentage withheld by the disbursing officer under such contract.
     (3) The employees of a contractor or the contractor's successors or assignees who have not been paid the prevailing wage under such a public improvement contract shall have a first priority lien against the bond or retainage prior to all other liens. The amount of all other taxes, increases and penalties due and owing from the contractor shall be a lien upon the balance of such retained percentage remaining in the possession of the disbursing officer after all other statutory lien claims have been paid.

NEW SECTION.  Sec. 14   A new section is added to chapter 51.04 RCW to read as follows:
     The department shall conduct education and outreach to employers on workers' compensation requirements and premium responsibilities, including independent contractor issues. The department shall work with new employers on an individual basis and also establish mass education campaigns.

Sec. 15   RCW 50.12.070 and 2008 c 120 s 7 are each amended to read as follows:
     (1)(a) Each employing unit shall keep true and accurate work records, containing such information as the commissioner may prescribe. Such records shall be open to inspection and be subject to being copied by the commissioner or his or her authorized representatives at any reasonable time and as often as may be necessary. The commissioner may require from any employing unit any sworn or unsworn reports with respect to persons employed by it, which he or she deems necessary for the effective administration of this title. Any employer who fails to keep and preserve the records required by this section shall be subject to a penalty determined by the commissioner but not to exceed two hundred fifty dollars or two hundred percent of the quarterly tax for each offense, whichever is greater.
     (b) An employer who contracts with another person or entity for work subject to chapter 18.27 or 19.28 RCW shall obtain and preserve a record of the unified business identifier account number for and compensation paid to the person or entity performing the work. Failure to obtain or maintain the record is subject to RCW 39.06.010 and to a penalty determined by the commissioner, but not to exceed two hundred fifty dollars, to be collected as provided in RCW 50.24.120.
     (2)(a) Each employer shall register with the department and obtain an employment security account number. Registration must include the names and social security numbers of the owners, partners, members, or corporate officers of the business, as well as their mailing addresses and telephone numbers and other information the commissioner may by rule prescribe. Registration of corporations must also include the percentage of stock ownership for each corporate officer, delineated by zero percent, less than ten percent, or ten percent or more. Any changes in the owners, partners, members, or corporate officers of the business, and changes in percentage of ownership of the outstanding shares of stock of the corporation, must be reported to the department at intervals prescribed by the commissioner under (b) of this subsection.
     (b) Each employer shall make periodic reports at such intervals as the commissioner may by regulation prescribe, setting forth the remuneration paid for employment to workers in its employ, the full names and social security numbers of all such workers, and the total hours worked by each worker and such other information as the commissioner may by regulation prescribe.
     (c) If the employing unit fails or has failed to report the number of hours in a reporting period for which a worker worked, such number will be computed by the commissioner and given the same force and effect as if it had been reported by the employing unit. In computing the number of such hours worked, the total wages for the reporting period, as reported by the employing unit, shall be divided by the dollar amount of the state's minimum wage in effect for such reporting period and the quotient, disregarding any remainder, shall be credited to the worker: PROVIDED, That although the computation so made will not be subject to appeal by the employing unit, monetary entitlement may be redetermined upon request if the department is provided with credible evidence of the actual hours worked. Benefits paid using computed hours are not considered an overpayment and are not subject to collections when the correction of computed hours results in an invalid or reduced claim; however:
     (i) A contribution paying employer who fails to report the number of hours worked will have its experience rating account charged for all benefits paid that are based on hours computed under this subsection; and
     (ii) An employer who reimburses the trust fund for benefits paid to workers and fails to report the number of hours worked shall reimburse the trust fund for all benefits paid that are based on hours computed under this subsection.

NEW SECTION.  Sec. 16   (1) An interagency advisory committee on the underground economy is created. The committee shall conduct a continuing study of the underground economy with the goal of reducing or eliminating the underground economy in this state.
     (2) The committee is composed of:
     (a) One representative each from the department of labor and industries, the employment security department, and the department of revenue;
     (b) One representative of cities, appointed by an association of cities and one representative of counties, appointed by an association of counties; and
     (c) Three representatives each of labor and employers, appointed by the director of the department of labor and industries.
     (3) Members shall serve a term of three years beginning on September 1, 2009, except that the terms of the members representing labor and employers shall be staggered so that the term of one member appointed from each group expires in two years and the term of one member appointed from each group expires in one year. Vacancies shall be filled in the same manner as initial appointments.
     (4) The member representing the department of labor and industries shall serve as chair.
     (5) Beginning December 1, 2010, and annually thereafter, the committee shall report to the appropriate committees of the legislature on its findings and recommendations.
     (6) The report due December 1, 2010, shall include, but not be limited to, the following issues:
     (a) Shortening of reporting times for new hire reporting under RCW 26.23.040 as a means of improving state agency data cross-matching capabilities and usefulness;
     (b) Modifying resale certificate provisions;
     (c) Requiring contractors to place subcontractor unified business identifier numbers on checks;
     (d) Establishing penalties for owners who intentionally do not follow the law;
     (e) Establishing penalties for persons who offer or accept undocumented cash payment;
     (f) Enhancing funding for the master business application system; and
     (g) Establishing additional benchmarks and measures for purposes of section 17 of this act.
     (7) Members, except those representing an employer or organization, shall be reimbursed for travel expenses as provided in RCW 43.03.050 and 43.03.060.
     (8) The department of labor and industries, the employment security department, and the department of revenue shall coordinate and provide staff support for the committee.

NEW SECTION.  Sec. 17   The department of labor and industries, the employment security department, and the department of revenue shall coordinate and report to the appropriate committees of the legislature by December 1st of each year on the effectiveness of efforts implemented since July 1, 2008, to address the underground economy. The agencies shall use benchmarks and measures established by the institute for public policy and other measures it determines appropriate.

NEW SECTION.  Sec. 18   Sections 16 and 17 of this act constitute a new chapter in Title 43 RCW.

NEW SECTION.  Sec. 19   Section 15 of this act takes effect October 1, 2009.