New Bill Aims to Limit Independent Contractor Use
August 7, 2023
By Kelli Saunders, originally published in SBAM’s July/August 2023 issue of Focus magazine
SBAM prioritizes alerting our membership to legislation that we see as problematic and could impact the way you run your business. The goal of government and the legislature should be to set a climate that creates an environment for success and not one of blockades.
Recently, the House of Representatives Labor Committee held a hearing on HB 4390. This bill seeks to limit the use of independent contractors, which we assess to be the most dam- aging bill in recent memory for small businesses. This legislation would limit the use of independent contractors (most are small businesses) to the following narrow circumstances:
- The individual is free from control and direction of the payer in connection with the performance of the work, both under a contract and in fact.
- The individual performs work that is outside the usual course of the payer’s business.
- The individual is customarily engaged in an independently established trade, occupation or business of the same work performed by the individual for the payer.
This legislation would harm small businesses in two over-arching ways:
First, under these limitations, small businesses operating as independent contractors would be severely restricted in the type of business that they could receive from other businesses. Their customers could not use independent contractors unless the work is outside the “usual course” of the payer’s business. Furthermore, it is not feasible that the work of an independent contractor be “free from direction of the payer in connection with the performance of the work.” This broad language would go way beyond current standards that speak to the times when work is completed.
Second, this legislation would severely restrict when a small business could use independent contractors to grow. Smaller enterprises do not often grow in full-time employee increments. Fractional services from independent contractors are an essential part of the small business ecosystem.
Furthermore, and even more troubling, it is stated explicitly that a person who is accused of violating the restrictions in this legislation would have the burden of proving they are innocent. Violations of this act carry a $10,000 penalty, half of which is awarded to the person who makes the accusation.
SBAM’s policy team is committed to educating legislators on why this legislation is so harmful to small businesses. This summer we plan to be a part of a workgroup that shares concerns and helps curb this type of policy. We are regularly engaged in conversations with a building coalition against the bill as it stands, and we will be conducting our own legislative roundtables with our members to share how this would impact day-to-day operations so legislators can hear from their constituents directly.