Bill S.B. 416
This bill would amend the definition of independent contractor in several contexts, prohibit misclassification of workers, and require registration of independent contractors engaged in construction.
First, for purposes of Rhode Island payment of wages law, an independent contractor would be defined as any natural person, business, corporation or entity of any kind that provides goods or services to another and that does not qualify as an employee. For these purposes, an employee is defined according to Internal Revenue Service factors, provided that, a person performing any service, except as provided by Rhode Island law regarding exemptions from unemployment insurance, shall be presumed an “employee” unless:
(1) the person is free from control and direction in connection with the performance of the service, both under his or her contract for the performance of service and in fact; and either:
(i) the service is performed either outside the usual course of the business of the procurer of the service or outside of all the places of business of the procurer of the service; or
(ii) the person is engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed. This requirement is satisfied, among other ways, where the service performed has historically been recognized as an independent trade, occupation, profession or business and persons engaged therein have historically been treated as independent contractors for tax purposes.
The 3-prong test for independent contractor status above is used throughout the bill.
Second, for purposes of Rhode Island payment of wages law, the bill also would prohibit misclassification of employees. The bill would make it a violation to misclassify a worker, whether performing work as a natural person, business, corporation, entity of any kind, as an independent contractor as defined above. Liabilities for such misclassification would include:
(1) To the aggrieved party, liquidated damages in an amount equal to two times the amount of state and federal payroll taxes, employment security contributions, and workers’ compensation premiums for which the employer would have been liable if the employee was properly classified; and
(2) To the Rhode Island Department of Labor and Training (“Department”), a civil penalty in the amount of up to $500 for each misclassified employee for a first offense and up to $1,000 for any subsequent offense.
The bill would also require the Department to notify the Contractor’s Registration Board and the Tax Administrator of a violation. The bill would also create a private right of action for an aggrieved employee or former employee to collect wages or benefits and equitable relief. In such a civil action, the aggrieved party would be entitled to recover any unpaid wages and/or benefits, compensatory damages, and liquidated damages in an amount equal to two times the amount of unpaid wages and/or benefits owed, as well as an award of appropriate equitable relief, including reinstatement of employment, fringe benefits and seniority rights, and reasonable attorneys’ fees and costs, and/or such other appropriate relief authorized by Rhode Island law. The bill also would prohibit retaliation against any employee or other person for asserting, supporting, reporting, or participating in the investigation or determination of such a violation.
Third, for purpose of Rhode Island worker’s compensation law, the bill would define independent contractor as any person, business, corporation or entity of any kind that provides goods or services to another and satisfies the 3-prong test listed above.
Fourth, the bill would define an independent contractor for purposes of Rhode Island unemployment insurance as any person, business, corporation or entity of any kind that provides goods or services to another and satisfies the 3-prong test listed above. For purposes of Rhode Island unemployment insurance, if the provider of the services furnishes and operates capital machinery and/or a specialized or heavy commercial vehicle as the major component of the service provided, it would be considered a factor demonstrating lack of direction or control by the procurer. In addition, failure to withhold federal or state income taxes or to pay unemployment compensation contributions or workers’ compensation premiums with respect to a person’s compensation would not be considered in making a determination of whether an individual is an employee or independent contractor. The penalties applicable for misclassification of workers for purposes of Rhode Island payment of wages law (listed above) would also apply for misclassification of workers for purposes of unemployment insurance, in addition to existing penalties under Rhode Island law.
Fifth, the bill would create a voluntary registration process for independent contractors such that any natural person, business, corporation, or entity of any kind identifying itself as an independent contractor may file a notice of designation as an independent contractor with the Department (hereinafter referred to as a “registration”). The registration would be required to identify the registrant as an independent contractor and contain such other information
and be submitted on such uniform form and in such manner as may be prescribed.
Such registration would be mandatory only for a natural person or sole proprietor or any single employee business, corporation, or entity of any kind performing construction in this state, except as provided in subsection (c) below. For these purposes, “construction” means any public or private work consisting of grading, clearing, demolition, improvement, completion, repair, alteration, renovation, or construction of any public or private road or any bridge, or portion thereof, or any public or private building, or portion thereof, or any heavy construction, or any public works projects of any nature or kind whatsoever.
Subsection (c) provides that mandatory registration does not apply to:
(I) residential construction projects with five (5) units or more, excluding owner contracted routine maintenance or repair work; or
(II) non-residential construction projects valued at one million dollars ($ 1,000,000) or more, including any subcontract, regardless of its value, relating to said project, except for purposes of voluntary compliance.
Any provider of services which furnishes and operates capital machinery and/or a specialized or heavy commercial vehicles as the major component of the service provided would be exempt for purposes of mandatory registration.
Failure to register, when mandatory, would subjects one to a civil penalty in an amount not less than $1,000 and not greater than $3,000 for each violation.
Despite the above, no independent contractor would be liable for failing to register as an independent contractor if that party did not:
(i) hold itself out as or request to be paid as an independent contractor; and
(ii) receive a written disclosure of engagement as an independent contractor from the procurer of services performed by the independent contractor as provided in subsection (e) below.
In addition, it shall be a defense to the imposition of any penalties on the independent contractor if the independent contractor was registered with the contractors’ registration board and paying self-employment taxes or estimated taxes at the time of the violation.
Subsection (e) provides that any procurer of services performed by an independent contractor, which has failed to register when required, shall be jointly and severally liable for any penalty imposed, unless said procurer shall have, prior to work being performed:
(i) filed a notice of procurement of independent contractor services with the director; and
(ii) disclosed to the independent contractor in writing of its intention to pay the party as an independent contractor and not as an employee.
Such a filing and written disclosure to the independent contractor shall immunize the procurer from liability for any services of the independent contractor performed for the procurer during the calendar year in which the filing and written disclosure were effectuated. The notice of procurement of independent contractor services required must identify the registrant as a procurer of independent contractor services and contain such other information and be submitted on such uniform form and in such manner as may be prescribed.
Sixth, the bill would direct the Department to provide to other requesting state departments or agencies any labor related information, records or documents, concerning employee misclassification, as deemed necessary to review in fulfillment of statutory duties.
