Labor Department Challenges State Contractor Rule

Article excerpt

By Lou Anne Wolfe

Journal Record Staff Reporter

A terse letter from the U.S. Department of Labor about a new independent contractor rule approved by the Oklahoma Employment Security Commission strongly suggests the commission change or revoke the rule.

The June 30 letter, addressed to commission Executive Director Wayne Winn, from Dallas regional labor department Administrator Floyd E. Edwards, asks for a response by July 15. The commission is scheduled to meet Thursday morning at Fountainhead Resort Hotel in Checotah, and the issue is on the agenda.

Ben Blackstock, manager of the Oklahoma Press Association and an ardent supporter of the new rule, said: "We ain't giving up yet."

Legal action could be taken against the U.S. Department of Labor, he said.

"We've put up with the Department of Labor on this simple issue far too long," Blackstock said.

Failure by the Oklahoma agency to act on the directive of the regional labor department office could mean an eventual loss to Oklahoma of some $18 million in federal funding to run the Oklahoma Employment Security Commission, according to Jim Sullivan, deputy director for unemployment insurance with the Dallas office.

Additionally, the federal labor department could revoke the 4.5 percent offset credit for state unemployment taxes that Oklahoma employers currently receive on their federal unemployment taxes, Sullivan said.

The offset credit results in Oklahoma employers paying 0.8 percent in federal unemployment taxes, compared with 6.2 percent they'd pay if the credit were unavailable.

The labor department directive is the latest volley in a controversy over exactly which employees can be classified as independent contractors for unemployment tax purposes.

Some Oklahoma employers campaigned for a new and clearer independent contractor rule because they said despite goodith attempts to follow Oklahoma law, employment security commission auditors were charging them penalties and back taxes for violating it.

The U.S. Department of Labor, however, says the new rule does not conform with federal law. If the state commission fails to do something by July 15, the issue will advance to the U.S. Secretary of Labor in Washington, D.C., Sullivan said.

"There have been states that have gone as far as conformity hearings, but no one has ever won. They've always given in, because they stand to lose too much," he said.

The money losses to Oklahoma's commission, and the tax hike to employers on their federal unemployment taxes, would not happen for a few years, pending resolution of the matter, Sullivan said. He said the issue would be up to the labor secretary, and could go either way.

However, Sullivan did acknowledge that the position taken by Dallas regional officials has the backing and support of the national office.

After outlining the aspects of Oklahoma's rule that federal regulators find troublesome, Edwards' letter to Winn said: "These issues, which attack the foundations of the unemployment insurance program, can only be resolved by rescission or modification of the rule. We reiterate that this situation is extremely serious, and that we must have your response to the information requested by July 15, 1992, which is fourteen (14) business days from the date of this letter."

Edwards' letter essentially complained that under the Oklahoma rule, individuals signing a contract with an employer that would classify them as independent contractors would throw away their right to unemployment compensation coverage. …