Indiana House approves South Bend lawmaker's contractor bill

INDIANAPOLIS — Construction companies that cheat the tax system by misclassifying their employees as independent contractors will have a harder time getting away with it under a bill the state House of Representatives approved today. Rep. David Niezgodski, D-South Bend, wrote the bill to help Indiana regulators find and punish companies that intentionally classify workers as independent contractors, instead of wage-earning or salaried employees, to avoid paying Social Security, unemployment insurance, workers’ compensation and other payroll-related taxes. Niezgodski, whose full-time job is with his family-owned plumbing company, said worker misclassification occurs in many industries but is most prevalent in construction. House Republicans attacked the bill, saying it will create more bureaucratic obstacles for businesses. "This will limit small business growth," said Rep. Milo Smith, R-Columbus, noting that many start-up companies use independent contractors. Niezgodski said the bill will help law-abiding businesses, which are at a competitive disadvantage against companies that aren’t paying all the required taxes. It will also help Indiana recover lost revenue at a time when the recession has led the state to cut budgets for public schools and other agencies, he said. "Our economy is strained; we’re just barely coming through the Great Recession," Niezgodski said. "Those dollars need to go into the unemployment insurance fund. They need to go in as state tax revenue." The state Department of Workforce Development found more than 71,000 misclassified workers between 2004 and 2008 in Indiana, Niezgodski told his colleagues on the House floor. The peak year was 2006, when department audits of Indiana companies discovered more than 17,000 misclassified workers ­– the most of any state. Rep. Daniel Leonard, R-Huntington, argued that those numbers prove Indiana is already doing a good job of catching companies that misclassify workers, thus making additional legislation unnecessary. Niezgodski filed a bill last year to coordinate misclassification complaints among four state departments. His new bill adds teeth to the process by allowing the state to assess violators civil fines of $500. It also raises fees independent contractors pay when registering with the state from $5 to $25 to help cover the cost of a new computer system to track misclassification cases. Companies that have accidentally misclassified workers will be given seven days without penalty to correct the error, the bill says. "The bill is meant for offenders that know full well that their actions are unlawful," Niezgodski said. "I don’t want to bother the people that are doing things properly." Niezgodski’s bill passed by a vote of 53-43, with Democrats accounting for all but three of the "yes" votes. The proposal could play differently in the Senate, which Republicans control by a 33-17 majority. Staff writer Kevin Allen: kallen@sbtinfo.com (574) 235-6244