5-5-16 – How Special Interests Conspired to Kill Independent Contractor Bill

by Bruce Shields

In 1976, the Internal Revenue Service stiffened its audit process to crack down on what IRS claimed was an abuse of labor laws by which independent contractors file their own taxes, rather than have taxes withheld by an employer. Alleging that independent status is a scam for tax evasion, they began forcing sawmills to withhold taxes from self-employed truck drivers. Vermont loggers, saw-mills and other farm and forestry interests responded by organizing to lobby for their economic concerns. Eventually, the IRS issued a so-called “Safe Harbor” test delineating clearly what constitutes an independent contractor.

Labor Unions view independent contractors as enemies to collective bargaining, and have sought laws to eliminate independent contractors and piece workers wherever possible. During the New Deal, labor-sponsored laws were passed ending piece work. Prior to those laws, Vermont’s rural economy was created by people working independently at hundreds of crafts occupations. The New Deal laws devastated Vermont’s rural economy: stores were prohibited from paying home-workers in all kinds of occupations. Embroidery, palm hats, needlework, knitting, hand-loom weaving, crocheting, lace-making and dozens of other crafts traditionally practiced on Vermont hill farms became illegal except when performed in factories. The change shifted those jobs to union operations in urban areas, and precipitated the whole-sale abandonment of thousands of small farms. Now those skills have been lost save for such preservation efforts as the southern Fox Fire Project.

Vermont over time has created its own definitions of independency, many incompatible with Federal definitions. One consequence of Vermont policy is crushingly high cost of Worker’s Compensation Insurance. If a worker is injured on the job, the employer is responsible for all bills. Vermont requires a person seeking employment on any project with State or Federal funding to be either employed by a qualifying entity or to present “Proof of Insurance” — a shell Worker’s Compensation Insurance Policy which explicitly excludes owners of the firm from coverage. Vermont Worker’s Compensation costs are so high that in many rural occupations, the insurance cost precludes a contractor from taking on employees. A logger doing manual falling of trees (with a chainsaw and cable skidder) may owe a premium of $50 assessed against each $100 of payroll. For comparison, teachers commonly pay about 35¢ for each $100 of payroll. Perversely, Vermont embargoes people from buying insurance from other states, where much larger risk pools reduce the premiums for most rural occupations. Community rating seemed indispensable for Health Insurance, but can’t even be discussed for Worker’s Compensation.

The 2012 elections enabled a newly aggressive drive by Vermont labor unions against independent contractors. Auditor of Accounts Doug Hoffer proclaimed that a major theme of his auditing was to insure that independent contractors were properly certified. Since Vermont rules differ in many critical respects from Federal and IRS rules, a contractor may be independent by Federal rule but for Vermont purposes an employee. A number of bills were introduced in the current biennium to rectify that ultimately intolerable whipsawing of independent contractors. H.867 was probably the most comprehensive.

Approaching a stadium for a Big 10 football game, vendors hawking printed programs advise, “You can’t follow the game without a program.” And that is also how the Vermont legislature works. Vermont labor interests have thwarted action on H.867, the major point of which is to harmonize Vermont and Federal independent contracting rules. Opposition to H.867 includes some very cleverly disguised promoters of organized labor.

More than 20 years ago, a civic group formed calling on Vermont businesses to adopt a higher morality than mere provision of goods and services to the public. Vermont Businesses for Social Responsibility included as part of its mission the creation of a friendly environment for organized labor. In due course, VBSR petitioned the Legislature to create a State sponsored fund to administer State, Federal, and Foundation grants for the purpose of promoting rural economic development. Vermont got what the Brits call a QUANGO — quasi-autonomous non-governmental organization — titled Vermont Sustainable Jobs Fund. The VSJF board matched top Administration officials with a selection of private-sector members appointed by the governor with Vermont Senate confirmation. When Jim Douglas appointed members not pre-approved by VBSR, VBSR’s supporters changed the legislation to make the VSJF board totally autonomous, no longer subject to gubernatorial nomination. Immediately following the 2010 election, Governor Douglas’s appointments to VSJF who had not been vetted by VBSR were purged.

VBSR and VSJF have now inserted themselves into the discussion about H.867, advising the legislature to allow this bill to die for the current session, so that there may be further study. The problem, however, is quite clear — conflicting State and Federal rules is not a sustainable situation for Vermont small businesses, and subjects many sole proprietors to a legal harassment. VSJF has apparently been swayed by its labor union backers to further scramble business arrangements for sole proprietors and independent laborers. Vermont labor’s willingness to recruit state government to harass “scab labor” is very dispiriting.

– Bruce Shields is a former president of the Ethan Allen Institute

{ 1 comment… read it below or add one }

Jim Bulmer May 6, 2016 at 9:18 pm

Once again the little guy gets stiffed because special interests rule the day. The super majority should be ashamed of itself!!!!!!!!!!!!!!!! It does NOT represent every day Vermonters. It caves to pressure from the vocal minority. Let’s have a huge turn over this November and vote these folks out of office!!!!!!!!!!!!

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