STAND. COM. REP. NO. 2408

                                   Honolulu, Hawaii
                                                     , 2000

                                   RE:  S.B. No. 2605
                                        S.D. 1




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committee on Labor and Environment, to which was
referred S.B. No. 2605 entitled: 

     "A BILL FOR AN ACT RELATING TO EMPLOYMENT SECURITY LAW,"

begs leave to report as follows:

     The purpose of this measure is to create a limited exemption
from paying unemployment insurance contributions for individuals
who hold an ownership interest of at least fifty percent in the
employing unit.

     Testimony in favor of the measure was received from the
Chamber of Commerce of Hawaii.  Testimony in opposition to the
measure was received from the Department of Labor and Industrial
Relations and the ILWU Local 142.  Comments were received from
the National Federation of Independent Business.

     If individuals are exempt from paying unemployment insurance
contributions, they are ineligible to receive unemployment
benefits.  Under current law, these individuals are not exempt,
pay unemployment insurance contributions, and at times are
eligible to receive unemployment benefits.

     Your Committee strongly supports the protections and
benefits provided by the unemployment insurance law and opposes
any attempt to circumvent the law or undermine the fund.  This
measure in no way affects an employer's obligation to make
unemployment security contributions for each and every employee.  


 
a                                                     SB2605 SD1
                                   STAND. COM. REP. NO. 2408
                                   Page 2


     Your Committee has amended this measure by making the
exemption optional and limiting the exemption to no more than two
individuals in any employing unit.

     Your Committee is concerned about the potential for abuse in
setting up numerous business entities to exclude "employees" from
unemployment insurance under the guise of being an independent
contractor.  Your Committee believes strongly that the
protections and benefits provided by the law should not be
circumvented.

     Your Committee is also concerned that certain employers may
fail to honor the intent of the employment security law by
excluding individuals who are rightfully employees and deserve
coverage.  Your Committee does not support any attempt to exclude
individuals who are actually employees.  Your Committee believes
strongly that any individual who is wrongfully excluded should
receive full benefits if unemployed.

     As affirmed by the record of votes of the members of your
Committee on Labor and Environment that is attached to this
report, your Committee is in accord with the intent and purpose
of S.B. No. 2605, as amended herein, and recommends that it pass
Second Reading in the form attached hereto as S.B. No. 2605,
S.D. 1, and be referred to the Committee on Ways and Means.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Labor and
                                   Environment,



                                   ______________________________
                                   BOB NAKATA, Chair

 
a                                                     SB2605 SD1