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This legislative session, the Virginia State Legislature has taken up numerous pieces of legislation dealing with worker classification, in other words, when a worker should be considered an employee or an independent contractor. This, in part, stems from Governor Northam’s employee misclassification and payroll fraud press release. H.B. 1407, expected to be signed into law in the near future, looks to be the first misclassification bill to make it over the finish line.
Earlier in the session, the legislature took up which would have adopted a three part “ABC” test for worker classification in the construction industry. This bill has now been tabled for the year. Unlike that bill, H.B. 1407 utilizes the IRS “twenty factor” test, applies it to most businesses in the Commonwealth, and establishes penalties for businesses that misclassify employees. The proposed penalties are as follows:
- First offense: A fine up to $1,000 per each misclassified individual
- Second offense: A fine up to $2500 per each misclassified individual, possible one-year contract debarment.
- Third and subsequent offences: A fine up to $5,000, possible three-year contract debarment.
In one sense, the bill is straightforward—although debarment would be a heavy penalty. In addition, many states utilize the twenty factor test so it is not unfamiliar to employers and far better than an ABC test. Regardless of one’s opinion of the bill, H.B. 1407 does highlight the current momentum of labor policy reform taking place at the state level. To see what else is happening with labor issues around the country click here.