STAND. COM. REP. NO.  1368

Honolulu, Hawaii

                , 2015

RE:   S.B. No. 1219

      S.D. 2

      H.D. 1

Honorable Joseph M. Souki

Speaker, House of Representatives

Twenty-Eighth State Legislature

Regular Session of 2015

State of Hawaii

Sir:

     Your Committee on Labor & Public Employment, to which was referred S.B. No. 1219, S.D. 2, entitled:

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

begs leave to report as follows:

The purpose of this measure is to ensure that the employment security law for independent contractors is applied consistently and appropriately by the Department of Labor and Industrial Relations (Department) by:

     (1)  Codifying the Internal Revenue Service's 20 common law factors for determining whether an employer-employee relationship exists, in addition to the "ABC" test in section 383-6, Hawaii Revised Statutes;

     (2)  Including definitions for "client" and "independent contractor"; and

     (3)  Requiring the Department to report to the Legislature on the guidelines developed by the Unemployment Insurance Coverage Committee and covered employment determinations.

The Chamber of Commerce Hawaii; Envisions Entertainment & Productions, Inc.; Maui Chamber of Commerce; National Federation of Independent Business; Society for Human Resource Management; The Maui Closet Company; Feed My Sheep; Pacific Whale Foundation; and several concerned individuals supported this measure.  The ILWU Local 142, Hawaii State AFL-CIO, and a concerned individual opposed this measure.  The Department of the Attorney General, Department, and Hawaii Association of Realtors commented on this measure.  

     Your Committee has amended this measure by:

     (1)  Replacing the Internal Revenue Service's 20 factors with the 20 factors and definitions prescribed in section 12-5-2, Hawaii Administrative Rules, which are used by the Department to determine whether an employer-employee relationship exists;

     (2)  Removing the definitions of "client" and "independent contractor";

     (3)  Specifying that the Department shall consider and address all of the 20 factors in making their determination;

     (4)  Specifying that the annual report regarding covered employment determinations shall be submitted for five years;

     (5)  Changing the effective date to July 1, 2115; and

     (6)  Making technical, nonsubstantive amendments for clarity, consistency, and style.

     Your Committee has concerns over the inability of businesses to have some predictability regarding the outcomes of employer-employee audits.  Your Committee recommends that the Department develop a program for institutionalizing these findings to establish the basis for greater predictability in the determination process.  The Department should also incorporate into its practices, the ongoing training of auditors, peer reviews, and case studies, to ensure that the application of the law is consistent.

     As affirmed by the record of votes of the members of your Committee on Labor & Public Employment that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1219, S.D. 2, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 1219, S.D. 2, H.D. 1, and be placed on the calendar for Third Reading.

Respectfully submitted on behalf of the members of the Committee on Labor & Public Employment,

____________________________

MARK M. NAKASHIMA, Chair