Business & Economy

Auditor: State not doing enough to enforce employment laws

A new report by State Auditor Doug Hoffer says state agencies aren’t doing enough to ensure that Vermont workers are protected by employment laws.
State Auditor Doug Hoffer. File photo by Roger Crowley/VTDigger
State Auditor Doug Hoffer. File photo by Roger Crowley/VTDigger

State laws meant to prevent workers who should be classified as employees from being classified as independent contractors aren’t being enforced properly, according to the report released Monday.

Workers wrongly classified as independent contractors don’t receive workers’ compensation or unemployment benefits, and they’re also on the hook for Social Security and Medicare taxes employers pay for their regular employees.

Businesses that don’t follow the rules are at a competitive advantage, because of the money they save in taxes and insurance premiums. That can allow a business to underbid the competition, Hoffer said.

A worker making $44,000 who is improperly classified as an independent contractor pays double the Social Security and Medicare taxes ($3,366 vs. $6,732), while the employer avoids $6,626 in costs per misclassified worker, according to the report.

Hoffer also found that state agencies and departments aren’t following statutes that require them to verify whether subcontractors for the companies they hire are following state employment laws. That leaves open the possibility that workers on state projects aren’t receivng the benefits and protections mandated by law.

Despite new laws passed in recent years and an executive order from Gov. Peter Shumlin in 2012 aimed at cracking down worker misclassification, the auditor’s report found that the Vermont Department of Labor has failed to enforce penalties for employers breaking the rules and isn’t effectively investigating the scope of the problem in Vermont.

“It’s not surprising that there are people looking for a competitive advantage and working around the margins,” Hoffer said. There is sometimes confusion around complex employment laws, but the state could be doing more to prevent worker misclassification and enforce penalties when the rules are broken, Hoffer added.

No penalties, poor case monitoring

Potential misclassification penalties of $260,000 were reported to employers in 2014, but none were assessed, according to a spreadsheet maintained by DOL’s unemployment insurance field audit chief, which was cited in the report.

Penalties are not being assessed, according to DOL Commissioner Annie Noonan, because the statutes in a 2010 law were vague and did not define an appeals process for employers hit with fines relating to unemployment insurance.

But Hoffer says that Noonan’s department has had five years to work with the Legislative Committee on Administrative Rules to write those regulations, and the task is still not complete.

While $122,000 in workers’ compensation insurance penalties were assessed in 2014, there were none issued in 2013, according to the report, and DOL “does not know the collection status” of $16,200 in penalties from 2012.

Noonan said new administrative rules for workers’ compensation were submitted in August, and the new rules for unemployment insurance will be submitted by October.

“We’re trying our best to get things organized and under control,” Noonan said, but the rules create controversy between business and labor interests, complicating their implementation.

Her department works actively on education and compliance with employers across the state, she said.

Records from DOL’s Workers Compensation Division show 30 investigations dating back to 2011 are incomplete, and another 134 cases listed as active are assigned to investigators who no longer work for DOL. The division’s database showed 73 cases assigned to a single investigator, according to the report.

Some of the cases classified as active were held open in case a business that closed reopened under another name, while others were complete but the necessary paperwork was never filed to officially close the case, Noonan said.

The Workers’ Compensation Division’s investigative unit has been constrained by illnesses, injury and turnover, she said. Two people in the five-person unit missed extended periods for medical leave, and one died recently, Noonan said. One employee did not make it past their probationary period, and a temporary worker left for a permanent position elsewhere. Another member of the unit missed time due to a work-related injury, she said.

During the period covered by the audit, 2011 to 2015, the unit was essentially staffed by one investigator and one supervisor, according to Noonan. Recently, DOL was able to fill all the positions in the investigations unit.

Hoffer found that unit does not have standards for the number of cases an investigator should handle, the timeframe for completing investigations or how cases are reassigned when someone leaves the unit. There are also no written protocols for prioritizing cases, according to the report. DOL’s legal division is working on developing such standards and protocols, according to Noonan. Having those in place could have helped to mitigate staffing issues, Hoffer said.

The report also identified problems with the information entered into DOL databases that track workers’ compensation and unemployment insurance.

“I think [the report] called out some important areas for improvement in data collection and case tracking, and ensuring we have consistent protocols and practices,” Noonan said. Her department is taking steps to make changes based on those recommendations, she added.

Task force could improve compliance, enforcement

Shumlin issued an executive order in 2012 creating the Employee Misclassification Task Force, which DOL is assigned to lead. While the task force has developed an outreach and education campaign, it met only twice before July 2015.

Massachusetts and New York have used task forces effectively to tackle worker misclassification, Hoffer said, improving cooperation and communication. In 2014, Massachusetts recovered $20 million in restitutions, taxes and penalties, according to its task force’s annual report.

Noonan said while the members of the Vermont task force weren’t meeting officially, her department has continued to work with the Secretary of State to improve enforcement, and also met with stakeholders from the labor and business community to improve compliance.

There are additional task force meetings planned for later this year, Noonan said, and her department is looking at ways it can work more closely with the Tax Department to improve its enforcement capabilities.

Subcontractors not being properly vetted

For state projects valued at $250,000 or more, employment laws require state departments and agencies to verify that contractors and subcontractors have workers’ compensation insurance. Businesses must also submit any history of employment law violations.

The audit report looked at the Agency of Transportation and the Department of Buildings and General Services, and discovered neither has practices to vet subcontractors.

“We take the audit report very seriously and it is critical that workers get classified appropriately both for our projects and those of BGS,” Deputy Transportation Secretary Chris Cole said. “We’re going to work diligently to make sure those recommendations are implemented.”

A call to the BGS commissioner’s office was not returned.

New forms that will go into use in 2016 ask companies bidding on state contracts for their subcontractors’ workers’ compensation information and violation history. Starting in July 2016, the agency will begin to audit the information provided by contractors, according to Cole.

Cole said his agency is working with DOL to ensure it has access to the information necessary to complete those audits. Currently, the information collected by DOL is only available upon request.



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Morgan True

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  • Ann Raynolds

    Keep this guy in office and he might, just might be able to clean up the bureaucratic inertia which allows do-nothing government employees and find ways to legitimately collect monies the state is owed. My hat’s off to his work!

  • Gary Murdock

    Mr. Hoffer, would you please tell us why dairy farmers continue to get a pass on the rules and requirements cited in this article? Why have Vermont progressives teamed up with Big Ag to exploit the most vulnerable amongst us, illegal’s from Mexico? Why does state government take the position that dairy farmers are exempt from the labor laws that every other business in the state are expected to follow? After all, the state does purchase dairy products, so why would those purchases not have the same prerequisites as a contract for other goods and services?

    • J. Scott Cameron

      Gary:

      If you or your kids or anyone you know is willing to take a job on a dairy farm and work at prevailing, legal agricultural wages please raise your hand. lots of farmers are willing to hire you.

      • Gary Murdock

        Mr. Cameron, you made my point with the use of two words: Prevailing & Legal. The wages are prevailing because of the use of illegals, they are legal because of the demoprog state government. To demonstrate consistency in opinion, would you also agree that for a public works project subject to “Prevailing” wages, that the contractor can base the wage they pay on the use of illegals working 60 hours a week with no OT, at the lowest wage they can get away with? That is, after all, what you are supporting for farmers.

    • Doug Hoffer

      Mr. Murdock

      Your question is best directed to the legislature as it is responsible for the statutes, not the State Auditor.

      For what it’s worth, I just looked at the relevant statutes and I don’t think those sections have been changed for decades. That is, the exemptions for some ag-related jobs have been in place since before there were any Progressives in the Vermont legislature. Moreover, I expect that most other states have similar provisions in their UI and WC statutes.

      In any case, I know quite a few Progressives and would be very surprised to learn that they had “teamed up with Big Ag to exploit the most vulnerable amongst us.” If you have evidence of that, please share it.

    • Doug Hoffer

      Mr. Murdock

      One more thing. Not all farmers “get a pass on the rules.” Farmers with payroll over $10,000 are required to provide workers’ compensation insurance for their employees.

      • jason wells

        “Farmers with payroll over $10,000 are required to provide workers’ compensation insurance for their employees.”

        Ya sure as long as the workers are on the books!

      • Gary Murdock

        Thank you Mr. Hoffer for your replies to my comment. I understand that this is not the format for a back and forth dialogue, but I would like to follow your comment up with another of my own. For a farm that hires illegals, which there are many (I live in Addison Cty, I know), would a farmer even declare wages to the undocumented workers? Anyway, I do appreciate your response, and I should mention that I do whole heartedly support you in what was reported in the article. I just feel that what’s good for the goose is good for the gander, and I understand that what I bring up is not your responsibility.

  • Rich Lachapelle

    Good point, Mr. Murdock…
    Illegal-immigrant farm workers are uber-progressive Vermont’s deep, dirty secret. No one is arguing against guest workers doing the things that lazy Ummericans just wont do (because our welfare system gives out checks for doing nothing) , but why shouldn’t they need to get a work visa like anyone else so we can have an opportunity to check criminal background?
    Again, no one wants to bring this issue to light because it tarnishes Vermont’s reputation as a shining beacon of progressivism.
    Another good point you make that since State agencies and school districts purchase dairy products procured under this system of underground labor, they are complicit.

  • This is such a constant here in Vermont – we excel at fabricating legislation, but enforcement? Not so much.

    Never enough money, enough people, enough time, enough accountability. Good intentions, though, remain an abundant, sustainable resource.

    • Rich Lachapelle

      Good point, Justin. It should be obvious that the intent behind 90% of the foofoo legislation that comes out of that golden-domed sausage factory is to make the legislators look good and not to create a better society.

  • Sam Lincoln

    The quarterly reporting for unemployment insurance used to be a couple of mouse clicks away from a completed form and printed check ready for the mail with my QuickBooks software. Now the state has setup a mandatory online filing requirement whereby the data must be manually entered onto it’s website each quarter, employee by employee. And, get this, they were mailing you a notice that it was due soon and mailing your quarterly password, but I couldn’t mail them back a form and a check. It’s cumbersome and terribly inefficient, and despite filling out multiple feedback surveys, requesting help to find a way to upload preexisting payroll files, the system remains poorly designed.

    Don’t just single out farmers for skirting the rules, all industries in Vermont have “subcontractors” who shouldn’t be according to the state. The way unemployment and workers comp rules are now setup, it’s adding several more large cuts to the death by a thousand cuts scenario. They make it very hard for an on-the-books small business owner to operate as many other associated small businesses that are on the bubble don’t have UI or WC. One thing I can assure folks is that nobody will approach me again to put my name down as a potential employer on their weekly “job search” to continue employment benefits without getting an earful about how much they cost those that are paying in.

  • Neil Johnson

    This has nothing to do with concern for the Vermont worker and everything to do with raising more money.

    Way to curb small business development, we in the business are feeling your pressure all the time. Do you have it in for someone starting their own business?

    People want the opportunity to better them selves and control their destiny, that’s why they choose to start their own business rather than work for someone else. Women are a major source of small business start ups.

    And you wonder why it’s so tough for Vermont small business? Here’s a prime example.

  • Neil Johnson

    This article also exposes the ineffectiveness and wastefulness in our State Government.

    This article also exposes the Gruber/Enron/Madoff accounting practices that are rampant in our state and country. Example…..employess always pay double what they see for medicare and social security, except we hid if from them and say it’s an employer tax. This is pure nonsense, it’s tied to the wage and doesn’t exist with out the employee.

    People should become more aware of what they are really paying in taxes and medical expenses. Those of us who are self employed know them all too well.

  • Craig Powers

    The State of VT has no one to blame but themselves for lack of enforcement on many fronts. The legislature passes too many feel good laws and then completely forgets the enforcement.

    Look at the texting and cell phone hands free laws recently enacted. They were put on the books to show the voters that VT is doing something to curb this practice…but it is rarely enforced. Not a day goes by where I do not see someone yakking away on their cell phone while driving or seeing their eyes in their lap (texting away) as they are passing by me on the other side of the road.

    Didn’t VT also pass a bill limiting the time a car can idle? How many time has that been enforced? Has even one ticket been written? It would be fun to know.

    While not a fan of Mr. Hoffer’s political views, I do applaud the fact that he has raised this issue with employment laws. It is truly unfair for those businesses who play by the rules to subsidize those who do not. It also creates an unfair competitive advantage for those who do not play by the rules.

    The DOL needs to get their act together.

    • Dear Mr. Powers:

      Quoting you: “While not a fan of Mr. Hoffer’s political views,…”

      All that matters to me is he is on the side of the people. If it wasn’t for Doug Hoffer, the criminal investigation now underway of the Brattleboro Retreat may not have ever commenced.

      Political positions aside, Mr. Hoffer is the real deal, cares only to do the right thing for us taxpayers and has no political aspirations than the office he occupies.

      Beyond that, I don’t care what Mr. Hoffer’s views are as they have nothing to do with the incredible work he does on behalf of our troubled state. Mr. Hoffer has represented our state with great distinction while churning out a consistent and high quality work product while getting by with the same number of staff despite the increasing demands on his office.

      Best wishes,

      Thomas Joseph
      http://www.brattlebororetreat.info
      Twitter: relator_joseph

    • Gary Shattuck

      Mr. Powers,

      Vermont has a rich tradition of passing laws without providing the requisite enforcement provisions to back them up. In the 1800s, the enforcement of laws coming out of Montpelier was left to the individual counties to take care of, and which was, in turn, dependent upon the inclinations of their respective state’s attorneys to decide whether or not to follow up.

      As a result, there were great disparities around the state when it came to enforcement of what was arguably one of its most vaunted pieces of legislation of the times, the prohibition of the manufacture and sale of alcohol beginning in 1852 and lasting for the next 50 years.

      As I will explain further when I give the inaugural Sam B. Hand Lecture at UVM on October 20, much of this mindset, from the legislature to the counties, resulted in Vermont then experiencing its first opium epidemic. Yes, that’s right, we had a large problem with opiates by 1900, and the more recent problems are hardly anything new.

      For more information, see: http://www.uvm.edu/~crvt/?Page=news&storyID=20942&category=crvevent

      Gary Shattuck

  • H. Brooke Paige

    I assume that Mr. Hoffer will investigate all of the “independent contractors” that the state hires in place of state employees and treats the state’s misbehavior with the same “vim and vigor” that he applies to the private sector.

    Since the state should lead by example, I am sure Mr. Hoffer’s office will investigate the state first ?

    “What’s fair for the goose is fair for the gander!”

    • Doug Hoffer

      First, we didn’t audit the private sector. We audited the VT Dept. of Labor, as well as BGS and AOT. In any case, see Objective 2 for information about the State’s behavior (pages 34 – 41)

      http://auditor.vermont.gov/sites/auditor/files/Worker%20Misclassification%20Audit%20bookmarked%208.31.15.pdf

      In addition, we are currently engaged in an investigation of whether state government is following sole-source guidelines outlined in Bulletin 3.5. That is, are the agencies and departments justified in entering personal service contracts without competitive bidding? This project should be completed sometime in October

  • jason wells

    Auditor Hoffer,

    I am still awaiting an audit of the Health Connect/Web etc. debacle. From the outside it sure seems a few hundred million maybe more went up in smoke there. Is that in the works or no?