Bill would define independent contractors, reform worker’s compensations system

The state is trying to combat employee misclassification by tightening the reins on definitions of independent contractors versus employees.

Independent contractors work on a freelance basis for employers, but the relationship can flirt with the line between contractor and employee. Some companies intentionally call their employees independent contractors to avoid paying payroll taxes and worker’s compensation insurance premiums for them. Some employers also avoid the costs by reporting employees in lower-paying job categories.

House Bill 79, an omnibus worker’s compensation reform bill sponsored by Gov. Bill Walker, would outline an 11-point litmus test for independent contractors, defining when misclassification amounts to fraud. It also makes it the employee’s duty to report work and receipt of other wage-loss replacement benefits, according to Walker’s transmittal letter with the bill.

“These provisions will deter fraudulent conduct by employees that results in the unlawful receipt of workers’ compensation benefits, or conduct by employers that results in artificially low workers’ compensation premiums,” he wrote.

National surveys have estimated that misclassification affects about 15,000-20,000 Alaskans, according to an August 2015 news release from the Alaska Department of Labor and Workforce Development. The state has tried to crack down on misclassification for the past several years, signing memoranda of understanding with the state Division of Insurance and Department of Revenue and the U.S. Department of Labor to improve enforcement of laws against misclassification.

During an initial hearing on the bill Monday, Department of Labor and Workforce Development Commissioner Heidi Drygas and Division of Worker’s Compensation Director Marie Marx explained the details of the bills to the House Labor and Commerce Committee. The Worker’s Compensation Board, a citizen board advising the state on worker’s compensation issues, has been tackling the misclassification problem for some time, Marx said.

“We do not want to prevent true independent contractors from operating — we want them to operate,” she said. “We just want to make sure that those employers who are following the law operate on the same level playing field as those that do not.”

The department gathered input from employers while drafting the legislation and will continue to do so, Drygas said.

“Leading up to this bill, we had numerous listening sessions across the state,” she said. “…We get input all the time as far as how to improve the worker’s compensation system. It’s a balance. You have to balance the injured worker’s right against the employer’s rights for a reasonable, fair cost. It’s a tricky challenge.”

Two people testified at the hearing Monday afternoon on the industry side. Aves Thompson, the executive director of the Alaska Trucking Association, a nonprofit representing the state’s trucking industry, said the association has some concerns about the independent contracting definition part of the bill. Many trucking businesses work with independent contractors regularly, such as owner-operators who own their own trucks and contract to companies for freight. Thompson said the changes in the worker’s compensation law would impact them, he said.

“The proposed changes to the work comp statute essentially preclude the use of owner-operators in the trucking business in a number of different ways,” he said in testimony to the committee. “The rules proposed in House Bill 79 … (rule) out an owner-operator who works primarily for one load carrier, although the owner-operator may work occasionally for other load carriers. The second instance … leaves open to interpretation the definition of motor carrier to the contractor, or, as we call them, owner-operators, and does not clearly specify that many times direction given to the owner-operator results from customer demands or the requirements of some level of governmental law or regulation.”

He suggested an amendment exempting truck drivers from the law, similar to taxi drivers, part-time babysitters, cleaning personnel, part-time or transient help such as harvest workers, contracted entertainers, contracted sport officials and commercial fishermen, among other occupations.

Marx said other states have implemented similar guidelines for identifying independent contractors, and the state administration considered them before drafting its own.

“Of the states that have dealt with the test, we kind of looked at all states and looked at what language they had and with our drafters in the department and came up with a list of things that help to identify what is a separate business,” she said. “So these are kind of recurring hallmarks that we saw that states had come up with, hallmarks to truly identify what is truly a distinct, separate business.”

The bill takes a broad-based approach to reforming a number of aspects of the worker’s compensation system, including how penalties for employers who do not carry insurance are calculated, which are currently $1,000 per employee workday. Instead, the change would base the fines on the size of the businesses, setting the maximum at three times the monthly premiums the employers would have paid had they properly insured their employees. The current fine system falls heavily on small businesses and can penalize employers who keep good records more than those who do not, based on the number of days worked.

Other changes include dissolving the second injury fund, now redundant after the passage of the Americans with Disabilities Act; requiring a hearing after a claim is filed rather than an employee having to request one; preventing non-attorneys from representing parties before the Worker’s Compensation Board; eliminating a requirement for the board to approve attorney fees as part of a settlement when fees are the sole issue in the settlement requiring board approval; requiring employers to authorize or deny medical procedures based on a medical provider’s written request; and allows employers to pay benefits electronically. The Department of Labor and Workforce Development would also receive a larger percentage of the annual service fees insurers pay to the Division of Insurance, according to Walker’s transmittal letter.

Reach Elizabeth Earl at

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