Herald-Leader Editorial

Level the field for small business; bill clarifies rules on contractors

March 1, 2013 

Small businesses dot the landscape of every city, town and community business area.

These small businesses employ nearly half of all private-sector workers. And 53 percent of the businesses are home-based. Small businesses are important to local governments for the payroll taxes they generate and to the state for their sales tax revenue.

For the most part, these are independent family-owned operations that have been in business for many years. They might be a neighborhood market, drugstore, hardware or appliance store, or even a newspaper.

Those small businesses focus on offering quality products and customer service, complying with state and federal laws and treat their employees with dignity and fairness.

But there is also a segment of those who create an unfair advantage for themselves by not paying Social Security taxes, unemployment insurance and worker's compensation by referring to their employees as subcontractors or independent contractors.

This slanted playing field puts the employers following all the rules at a disadvantage and deprives workers of their rights under the law.

Senate Bill 89, sponsored by Rep. John Schickel, R-Union, offers a clear determination on whether or not an employer is correctly classifying workers.

SB 89 delineates six conditions that must be met to ensure the independent nature of the subcontractor company.

One of those tests is verification that the subcontracting company is complying with current federal immigration statutes.

Backed by the Kentucky Small Business Coalition, a group of 43 organizations and associations that represents thousands of local business around the state, the bill offers a simplified system requiring proof that a subcontractor is truly an independent, legitimate business.

It also would add clarity to the Revenue Cabinet's authority by streamlining compliance. It would document procedures that will clarify responsibilities of small business owners toward subcontractors of all types.

Without the provisions in SB 89, employers who misclassify their employees as independent contractors could continue avoiding taxes paid by legitimate businesses, depriving the state of revenue and unfairly enriching unscrupulous businesses.

The legislature needs to pass SB 89.

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