READ FIRST TIME 02/17/11.   

     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; amending 2009 c 432 s 13 (uncodified); adding new sections 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) It is a violation under this chapter and an infraction for any contractor to engage more than two independent contractors to work on or in a single building who:
     (a) Are working on the same task involving a similar material;
     (b) Bring no workers to work on or in the building 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) No more than two independent contractors, as covered by subsection (1) of this section, may be under contract at the same time. It is not a violation of this act, if more than two independent contractors work on or in a single building if proof is provided, both in written contract and in fact, that any independent contractors beyond the first two are not working as independent contractors during the same time period.
     (3) The exemptions provided by subsection (2) of this section are broad and in no way exempt independent contractors from industrial insurance coverage under Title 51 RCW. Each and every independent contractor must separately pass the tests provided in RCW 51.08.180 or 51.08.181 to be exempt from coverage under Title 51 RCW.
     (4)(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. However, the director shall waive the fine if the contractor registers for a department-approved training class within ten days of receiving a notice of infraction, completes the class within one hundred twenty days of receiving the notice of infraction, and pays the class fees upon class registration;
     (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 are paid in full.
     (5) For purposes of this section, "task" means a single risk classification as defined in rule under Title 51 RCW.
     (6) Classes offered under subsection (4) of this section may be conducted or approved by the department. Registrants must pay a fee to cover the cost of administering the class.
     (7) This section does not apply to work performed on residential wood frame construction up to four stories in height.

Sec. 3   2009 c 432 s 13 (uncodified) is amended to read as follows:
     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. Beginning on December 1, 2012, the report shall include the effectiveness of section 2 of this act. The agencies shall use benchmarks and measures established by the institute for public policy and other measures it determines appropriate.

NEW SECTION.  Sec. 4   Section 3 of this act is codified as a new section in chapter 18.27 RCW.