Legislature(2009 - 2010)BARNES 124

03/20/2009 03:15 PM LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Moved CSHCR 1(L&C) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
HB 22-WORKERS' COMPENSATION: SUBCONTRACTORS                                                                                   
3:22:51 PM                                                                                                                    
CHAIR OLSON announced that the next order of business would be                                                                  
HOUSE BILL NO.  22, "An Act relating  to requiring subcontractors                                                               
who  do not  have employees  and  who are  acting as  independent                                                               
contractors to  secure payment for workers'  compensation, and to                                                               
requiring subcontractors  who fail to secure  payment of workers'                                                               
compensation to  pay additional premiums incurred  by contractors                                                               
because of that failure."                                                                                                       
3:22:56 PM                                                                                                                    
REPRESENTATIVE HARRY  CRAWFORD, Alaska State Legislature,  as one                                                               
of the joint  prime sponsors of HB 22,  related his long-standing                                                               
passion for this  issue.  He offered his belief  that HB 22 would                                                               
"level the playing field."   He explained that currently a number                                                               
of subcontractors claim to be  owner/operators and not employees.                                                               
He opined that  some subcontractors have a  legitimate claim, but                                                               
others do not.   This bill removes the  uncertainty, and requires                                                               
everyone  who  subcontracts to  a  general  contractor to  obtain                                                               
workers' compensation insurance.                                                                                                
CHAIR  OLSON  announced  that  a  committee  substitute  (CS)  is                                                               
forthcoming.   He offered  his hope  that the  CS would  pass and                                                               
become the nationwide model.                                                                                                    
PAUL GROSSI,  Staff, Representative Harry Crawford,  Alaska State                                                               
Legislature, stated  that he has reviewed  the proposed committee                                                               
substitute.    He  opined that  the  committee  substitute  would                                                               
3:26:15 PM                                                                                                                    
ALAN WILSON, Owner, Alaska Renovators,  Inc., stated that he is a                                                               
Juneau-based homebuilder.   He related  that this issue  has been                                                               
around for  some time.   He explained  that the primary  issue is                                                               
that in the homebuilding industry,  contractors use numerous sole                                                               
proprietor  subcontractors such  as carpet,  tile, cabinetmakers,                                                               
and other subcontractors.  He  indicated that when subcontractors                                                               
are   licensed,  they   can  exempt   themselves  from   workers'                                                               
compensation insurance.  He further  explained that the insurance                                                               
industry   requires  contractors   to   obtain  certificates   of                                                               
insurance  from  all  subcontractors.     He  said,  "That's  the                                                               
problem."   He highlighted that  some subcontractors do  not have                                                               
the certificates  and bill the  contractor who must pay  based on                                                               
the  amount  of  the  invoice.    He  offered  that  he  has  not                                                               
specifically  reviewed the  "Tennessee Language"  incorporated in                                                               
the proposed committee substitute, but  believes it will take the                                                               
"gray area out of this issue and resolve it once and for all."                                                                  
3:28:01 PM                                                                                                                    
BRONSON FRYE,  Business Representative, Painters &  Allied Trades                                                               
Local 1959  (IUPAT Local  1959), speaking  on behalf  IUPAT Local                                                               
1959,  offered  support  for  HB   22,  which  requires  workers'                                                               
compensation insurance  for sole proprietors  or owner/operators.                                                               
He explained  that his organization  represents worker  in trades                                                               
such  as  painting,  drywall  taping, and  floor  covering.    He                                                               
related that  he supports the  bill since it has  become standard                                                               
operating   procedure  for   contractors  in   painting,  drywall                                                               
finishing,  and  floor  covering   industry  to  bid  large-scale                                                               
commercial construction  projects and re-subcontract  the project                                                               
to  entire crews  comprised of  owner/operators.   He  emphasized                                                               
that   sole  proprietors   can  waive   the  right   to  workers'                                                               
compensation.  However,  when the entire workforce is  made up of                                                               
owner/operators  without  workers' compensation,  the  contractor                                                               
has a  huge bidding advantage.   He  opined that the  practice is                                                               
"killing  the  industry"  by  making  it  almost  impossible  for                                                               
legitimate contractors  to compete.   He offered his  belief that                                                               
HB 22  would  provides  assurance that laborers will  be properly                                                               
insured.  Additionally, contractors  bidding work will compete in                                                               
a fair  and open  playing field.   Furthermore, he  stressed that                                                               
the practice  of subcontracting to  multiple tiers of  "so called                                                               
contractors"  in   an  effort  to  avoid   workers'  compensation                                                               
insurance and taxes  has become commonplace in  construction.  He                                                               
recalled a  Craigslist advertisement  on February 12,  2009, that                                                               
advertised  for independent  contractors for  commercial work  in                                                               
Juneau.   He said,  "Under the  requirements, it  says experience                                                               
not  necessary, onsite  training is  provided.   And then,  under                                                               
compensation  it  says,  hourly  range $9-11  per  hour.    Right                                                               
underneath that it  says, 'This is a contract job'."   He pointed                                                               
out  that he  has worked  in  the construction  field "his  whole                                                               
life."   He  opined that  he has  never encountered  a legitimate                                                               
subcontractor working  under a  legitimate subcontract  with zero                                                               
experience earning $9  per hour.  He said, "I  think anyone would                                                               
agree  that someone  working in  commercial construction  with no                                                               
experience working  for $9 per hour  is far more likely  to be an                                                               
employee  of  some  sort  and  by no  means  a  true  independent                                                               
contractor."    He  offered  that  he  mentioned  the  Craigslist                                                               
advertisement  to demonstrate  how brazen  some contractors  have                                                               
become in  their misclassification of  employees in an  effort to                                                               
avoid  workers' compensation  insurance as  well as  any taxes  a                                                               
contractor  would  normally  match   for  their  employees.    He                                                               
reiterated  his support  for HB  22 and  applauded Representative                                                               
Crawford for introducing the bill.                                                                                              
3:31:05 PM                                                                                                                    
CHRIS GREGG, Painters  and Allied Trades Local  1959 (IUPAT Local                                                               
1959), speaking  on behalf of  IUPAT Local 1959,  offered support                                                               
for  HB  22.   He  stated  he  is  affiliated with  IUPAT,  which                                                               
represents  worker in  trades such  as painting,  drywall taping,                                                               
and floor covering in the  construction arena.  He explained that                                                               
in recent years the market  has been "ravaged" by contractors who                                                               
bid major  jobs and  then lease  out the work  to large  crews of                                                               
independent  contractors.     He   further  explained   that  the                                                               
independent  contractors   are  not  required  to   pay  workers'                                                               
compensation insurance or federal  insurance.  He emphasized that                                                               
this  gives  the  contractor  the ability  to  bid  work  without                                                               
considering the  cost of workers' compensation  insurance.  Thus,                                                               
the contractor  has a "considerable edge"  against any contractor                                                               
who  pays for  insurance  for his/her  employees  as required  by                                                               
state  law.   He offered  his belief  that workers'  compensation                                                               
insurance  is calculated  at  nearly 30  percent  of the  payroll                                                               
costs, this could mean that  an unscrupulous contractor can shave                                                               
thousands of  dollars, or hundreds  of thousands of  dollars from                                                               
bid proposals by  misclassifying his/her workers.   He said, "The                                                               
misclassification  of  employees  has become  standard  operating                                                               
procedure in the taping, painting,  and floor covering markets in                                                               
Alaska.   And it must come  to an end if  the law-abiding, honest                                                               
contractors are going  to have any chance  at being competitive."                                                               
He applauded Representative Crawford's efforts  on this bill.  He                                                               
stated that the IUPAT fully supports HB 22.                                                                                     
3:33:02 PM                                                                                                                    
DARRYL  KLOEPFER,  Vice-President,   Pacific  Partition  Systems,                                                               
stated that  his business  has been  in Alaska  since 1976.   His                                                               
business predominantly  contracts for  metal stud  priming gypsum                                                               
wallboard,  drywall  taping,  and painting  subcontractors.    He                                                               
stated  that he  has  been out  of the  taping  and painting  for                                                               
approximately  10  years as  a  result  subcontractors not  being                                                               
classified as  employees.  He opined  that his business was  at a                                                               
disadvantage   amounting   to   an   approximately   30   percent                                                               
disadvantage in bid  awards.  He thanked the prime  sponsor of HB
22.   He related that  he fully supports HB  22.  He  pointed out                                                               
that he  is currently involved in  estimating significant amounts                                                               
of state  and municipal government  projects.  He  indicated that                                                               
he is  currently being asked  by general contractors  who support                                                               
the "independent  subcontractor trade force" to  separate out the                                                               
bid estimate  for metal  studs and  drywall due  to an  influx of                                                               
subcontractors who install gypsum wall  board.  He explained that                                                               
he must  separate out the costs  when bidding. He opined  that he                                                               
is in jeopardy when bidding  commercial projects, which is a very                                                               
frustrating situation.  He thanked  the legislature for reviewing                                                               
the definition of employee versus  independent subcontractor.  He                                                               
stated he  reviewed some  of the  Internal Revenue  Service (IRS)                                                               
tax laws.   He said, "None of these  independent contractors that                                                               
we're forced  to compete against  have a category defined  by the                                                               
IRS as a profit and loss exposure.   There is no loss exposure to                                                               
these individuals.   They're being  paid, basically on  an hourly                                                               
basis."  He concluded by reiterating his support for HB 22.                                                                     
MICHAEL GALIOTO agreed with his colleagues.                                                                                     
3:36:18 PM                                                                                                                    
KEITH  MONTGOMERY,  Carpenters  Local  1281,  on  behalf  of  the                                                               
Carpenters Local 1281,  stated that his union  is affiliated with                                                               
the United Brotherhood of Carpenters.   He related that his union                                                               
represents carpenters, drywall finishers,  metal set framers, and                                                               
various  trades that  fall within  the  scope of  carpentry.   He                                                               
said, "Quite frankly,  it's a misclassification of  workers."  He                                                               
related  his   experience  that   tiers  of   subcontractors  are                                                               
independent contractors  who buy  the material, direct  the work,                                                               
and  pay workers,  sometimes "cash  under the  table."   He said,                                                               
"Basically,  it's gaming  the system."    He opined  that when  a                                                               
worker gets injured on the job  and receives hospital care and is                                                               
not covered,  the costs are often  absorbed by the hospital.   He                                                               
related  that not  providing workers'  compensation insurance  is                                                               
unfair to legitimate  businesses.  Further, some  workers sign up                                                               
as independent contractors and are not  paid.  He offered that HB
22 is a means to "level the playing field."                                                                                     
3:38:12 PM                                                                                                                    
CHAIR OLSON  announced that HB 22  will be held over  for further                                                               
consideration.  He anticipated that  a committee substitute would                                                               
be forthcoming.                                                                                                                 
3:38:37 PM                                                                                                                    
The committee took an at-ease from 3:38 p.m. to 3:39 p.m.                                                                       

Document Name Date/Time Subjects
01 HCR1 ver A.pdf HL&C 3/20/2009 3:15:00 PM
02 HCR1 Sponsor Statement.pdf HL&C 3/20/2009 3:15:00 PM
03 HCR1 Fire Marshall Concept.pdf HL&C 3/20/2009 3:15:00 PM
04 HCR1 City of Homer Resolution.pdf HL&C 3/20/2009 3:15:00 PM
05 HCR1 Letter AK Fires Fighters Local 1264.pdf HL&C 3/20/2009 3:15:00 PM
06 HCR1 Letter Seward Fire Dept.pdf HL&C 3/20/2009 3:15:00 PM
07 HCR1 Letter.pdf HL&C 3/20/2009 3:15:00 PM
08 HCR1 Letter Ak Prof. Fire Fighters.pdf HL&C 3/20/2009 3:15:00 PM
09 HCR1 NIST US Dept. of Commerce Benefit-Cost Analysis.pdf HL&C 3/20/2009 3:15:00 PM
05 HB175 Draft CS ver S.pdf HL&C 3/20/2009 3:15:00 PM
HB 175
07 HB22 Tennessee HB1645 (pc1041) WorkersComp.pdf HL&C 3/20/2009 3:15:00 PM
HB 22
05 HB175 Draft CS ver S.pdf HL&C 3/20/2009 3:15:00 PM
HB 175
10 HCR1 Draft CS ver R.pdf HL&C 3/20/2009 3:15:00 PM
12 HCR1 Residential Structure Fire Causes - dist by Rep Seaton 3-20-09.pdf HL&C 3/20/2009 3:15:00 PM
13 HCR1 Letter DPS, Fire & Life Safety - Commissioner Joseph Masters.pdf HL&C 3/20/2009 3:15:00 PM
Mar 20 Packet Information.pdf HL&C 3/20/2009 3:15:00 PM