Legislature(2003 - 2004)
03/31/2004 03:27 PM House L&C
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 311-EMPLOYER RESPONSIBILITY FOR WORKERS' COMP CHAIR ANDERSON announced that the final order of business would be HOUSE BILL NO. 311, "An Act requiring a subcontractor to obtain workers' compensation insurance covering the subcontractor and the subcontractor's employees and establishing responsibility of a contractor for obtaining workers' compensation coverage for the subcontractor and the subcontractor's employees if the subcontractor fails to obtain workers' compensation coverage; and providing for an effective date." Number 0560 REPRESENTATIVE CRAWFORD introduced HB 311 on behalf of the Labor and Commerce Committee and testified that HB 311 ends the exemptions for sole proprietors or owner/operators, requiring them to have workers' compensation insurance. In the past liability had been shifted to the general contractor with the workers' compensation carrier billing the general contractor for the unpaid premiums. REPRESENTATIVE Holm summarized, "What this bill does is it makes sure that all sole proprietors and independent contractors not only have workers' compensation for themselves, but for their employees. Nobody gets out of that requirement." CHAIR ANDERSON gave an example of a contractor hiring a subcontractor who was not covered by workers' compensation, and though the subcontractor was not injured, an audit by [the Division of] Workers' Compensation resulted in the Division charging a fee to the general contractor to cover the subcontractor. He said, "So, basically, this is making sure that the contractor doesn't have to pay that, if the subcontractor purposefully didn't have workers' compensation." REPRESENTATIVE CRAWFORD replied, "If I understand this correctly, it makes the general contractor pay attention to whether their subcontractors are covered, so that everybody pays their workers' compensation bill. It doesn't allow anybody to escape .... A lot of people have been working and haven't been paying their workers' compensation premiums. We all see the problems with workers' compensation. The costs are going up." CHAIR ANDERSON noted that there was a Chamber of Commerce representative and Home Builders Association representative in the audience. He said he believes this proposed bill could allow the contractor to say, "Hey, ... you're not coming on and I'm not going to hire you until you get workers' compensation so I don't get dinged at the end of the year when there's an audit." He stated, "So, that's a good thing - it's helping both sides." Number 0252 REPRESENTATIVE CRAWFORD put forward a specific example: A number of years ago we build this big cow barn out at the Palmer Fairgrounds. It was a company that got the contract to do that called Century Construction (ph). ... They hired a subcontractor that I worked for to erect the steel. They also had a bunch of people - they called them subcontractors, independent subcontractors - to do a lot of the welding and miscellaneous steel. ... All these guys were employees. The Labor Department would have ruled them an employee, the courts would have ruled them an employee, because they showed up in the morning at the time the general contractor said. They did their work under the supervision of a foreman for the general contractor. They [Century Construction] were trying to save on the costs by not carrying worker's compensation on these so-called subcontractors. Each and every employee they had out there weren't employees of Century Construction; they were sole proprietors. One of those guys did get hurt and it was a bad injury that cost a lot of money, and it ended up that Century Construction folded up and left the state. I don't want to see that sort of thing happen here again, where Alaskan workers are being taken advantage of by fly-by-night contractors that are trying to skirt the system so that they can undercut legitimate contractors that live and work here year in and year out. Number 0048 ROBIN WARD, Contractor and Legislative Chair for the Alaska State Home Builders Association, testified that about five years ago she belonged to a task force composed of stakeholders from all over the insurance and construction industries. This taskforce tried to solve the problem of workers' compensation for sole proprietors. She stated she will not hire a sole proprietor on her job sites because of the exposure. She stated she hires sole proprietors as employees to make sure they are covered under her policy. She noted that she recently discovered two electricians on one of her job sites who did not have workers' compensation because they'd chosen to "opt out" under the licensing law. TAPE 04-37, SIDE A Number 0001 MS. WARD testified: There is an insurance policy that is available for a sole proprietor to [for] special insurance, that no matter how much they make, they're cap and their insurance premium is capped at $20,000 per year. So, it is available, [it is] not inexpensive, but it certainly is something that they can roll into their costs. It would create a level playing field for all of the sole proprietors and the prime contractors, along with protecting people who are actually working on the jobsite. The Alaska State Home Builders Association does support this legislation. CHAIR ANDERSON requested clarification on the insurance policy available to sole proprietors. MS. WARD said, "It is a special premium for [a] sole proprietor that is a capped premium. It's the same premium. It is capped at $20,000 of the income based on your classification. So, it's the same to everyone. You can decide how much money you want to make, but it would be a set premium, a cost of doing business every year." Number 0144 REPRESENTATIVE CRAWFORD commented: You know, $20,000 makes a lot of people gasp. To give you an idea of what it costs for an ironworker to erect iron, what the workers' compensation cost is there, it will run from $80 per $100 of payroll up to maybe $118 for every $100 of payroll. So, $20,000 would be really, really cheap insurance for the ironworking industry. CHAIR ANDERSON asked if it was mandated that the sole proprietor get this insurance or could the sole proprietor negotiate with the contractor for coverage. REPRESENTATIVE CRAWFORD replied that he could negotiate with the contractor. MS. WARD clarified: No, it's $20,000 in income. That's not the cost of the premium. ... Your premium is based on what your classification is; it's capped on the income of $20,000. Even if you made $80,000 that year in gross income, your premium would only be based on a $20,000 income. It [the premium] could be anywhere from a couple hundred dollars a month - normally most of them run in most classifications like tile layers or flooring, carpentry, that sort of thing, are probably going to run between $300 and $3500 per year. REPRESENTATIVE ROKEBERG asked Ms. Ward to refresh the committee's memory as to why this bill didn't pass previously. MS. WARD believed the failure to pass was primarily due to legislative time constraints but also recalled one Senator who had concerns because he had a constituent who was a sole proprietor. She stated, "The task force went through every option we could think of. This is the only option that really takes care of this issue." REPRESENTATIVE ROKEBERG asked if the possibilities for some kind of waiver or "opt out" provision, possibly a statutory "opt out" for a sole proprietor where they could choose the "opt out" and not be subject to a claim against the general contractor, if these possibilities had been exhausted. MS. WARD replied: It still would be subject to a claim against the general [contractor]. We worked with the Division of Workers' Compensation; we looked at the laws very carefully. ... The workers' compensation law really sways to the benefit of an employee and even with every type of legislative "opt out" waiver, we could not find a way that it would address this issue by just making sure they had some kind of a policy. CHAIR ANDERSON noted he had asked the Chamber of Commerce representative and the AFL-CIO [American Federation of Labor and Congress of Industrial Organizations] representatives if they wanted to testify and both declined at this time to do so. REPRESENTATIVE ROKEBERG asked Mr. Lisankie what he thought the proper public policy should be. He asked, "Should we not allow actual small business operators to not be covered and then not have the right to seek a claim under a general's [general contractor's] policy, if there's a contractual agreement to that affect? Would that be against what we think the public policy should be for workers' compensation?" Number 0538 PAUL LISANKIE, Director, Division of Workers' Compensation, Department of Labor & Workforce Development, responded: It appears that there are kind of competing policy elements in the workers' compensation Act [Workmen's Compensation Acts] right now. It would appear to me that you could address it either way. If it's a problem, and people are saying that it's a problem, it starts by letting people "opt out". This [HB 311] addresses it in the way of saying ... no, they cannot "opt out" while they're engaged as a subcontractor. My assumption, just listening to the conversation, is as long as that sole proprietor is just working on a project for a homeowner, or something like that, where there is no general/subcontractor relationship; they could continue to "opt out". REPRESENTATIVE ROKEBERG said, "It's kind of hard to turn on and off a premium they have to pay periodically if you're going to have coverage. Or, can you buy job specific policies?" MR.LISANKIE replied he did not know the answer to that question but he would inquire at the Division of Insurance. REPRESENTATIVE ROKEBERG stated he understood and approved of the concept of the bill, but he wondered if he, as a sole proprietor for 30 years who had never had this type of insurance, could "opt out" without affecting the bill's intent. He continued: If you were a subcontractor in a home building situation and you weren't covered by a policy now, you currently, under the statute, could make a claim against the general's policy, if there's injury. ... The subs would go bare and they'd make claims against the general. It would seem to me if they had a clear contractual obligation for the sub to "opt out", and he couldn't make a claim under the statute. Number 0775 REPRESENTATIVE GUTTENBERG stated a concern: If a subcontractor could be covered under the contractor's clause, that's one thing. But the contractor not being responsible for the subcontractor's workers' behaviors, you might have a high-risk claim pool and you might not want to do that. The general contractor, whose employees are responsible to him, might have a very good workers' compensation history and not want to be affiliated with a subcontractor who has a really bad history of accidents. REPRESENTATIVE ROKEBERG asked if the general contractor could not hire a subcontractor and require him by contract to have a policy. MR. LISANKIE replied: If I understood Ms. Ward's testimony, her personal preference is to do just that. But, if I understand correctly the history of this, that there's the mere possibility that someone could choose to make a claim against the general that is motivating the insurance industry ... to audit and pass that cost along to the general contractor, just on the theory that they might do it. ... The objective is to just take the guesswork out of the system, strip the sole proprietor of the opportunity to "opt out", at least when they're being a subcontractor ... My understanding is that there would be additional people who are covered, so, from our perspective, it would be one less person to worry about. REPRESENTATIVE ROKEBERG stated his concern about the definition of a subcontractor and noted that there is a licensure provision for specialty contractors who typically are subcontractors. He asked Ms. Ward if she could clearly define a subcontractor, in particular a subcontractor with a license. Number 1161 MS. WARD replied, "Yes, that's exactly it. We don't hire anyone who isn't a specialty contractor and on their license they have "opted out" of workers' compensation." ... CHAIR ANDERSON noted that there's another House bill delineating some aspects of specialty contract services. REPRESENTATIVE ROKEBERG wondered if HB 311 had general applicability outside of the building trades. MS. WARD replied that this issue is most prevalent in residential home construction. CHAIR ANDERSON asked Ms. Ward if she thought there was a need for an amendment. MS. WARD replied, "Absolutely, we'll certainly look at that." REPRESENTATIVE CRAWFORD stated that when there's a subcontractor in the building trades or for a trucking company, this bill would change the relationship to the general contractor. But that when someone is acting as a sole proprietor, such as Representative Rokeberg had mentioned, they would not be required to get worker's compensation insurance. He continued: I think that as long as you leave an "opt out" provision, then we haven't fixed the problem. That's what this bill is about. The very guts of the bill is to do away with an "opt out" provision for independent subcontractors and sole proprietors... CHAIR ANDERSON stated he relies on that judgment and asked Ms. Ward if she could rely on this interpretation. MS. WARD testified: Yes, because it's our understanding and [has] always been our understanding, that this only pertains to a licensed specialty contractor who works for a general contractor. If a sole proprietor wants to work for homeowners or has negotiated with a prime contractor to pay this for them, they are allowed to do this. This is only to protect the situation where a licensed specialty contractor works for a general licensed contractor. Number 1196 REPRESENTATIVE ROKEBERG noted that they could make a conceptual amendment to require that the subcontractor additionally be a specialty contractor, however, he said this would narrow the applicability of the statute. MS. WARD responded: I'm not in favor of narrowing the scope that it says absolutely that it is a licensed specialty contractor because I think, and one of the problems that we're having right now, is more and more of our specialty contractors aren't getting licensed and they are working unlicensed. We're trying to encourage people to be licensed and have their bond and their workers' compensation. Number 1250 REPRESENTATIVE LYNN moved to report HB 311 out of committee with individual recommendations and the accompanying fiscal notes. Hearing no objections, HB 311 was reported from the House Labor and Commerce Standing Committee.
| Document Name | Date/Time | Subjects |
|---|