MONTPELIER, Vt. — Employers will have their payments into the state’s unemployment insurance program reduced according to the Vermont Department of Labor. The change is unlikely to satisfy employers forced to pay the tax on independent contractors as well as employees.
Starting July 1, the new highest Vermont UI tax rate will fall from 8.4 percent down to 7.7 percent. The lowest rate will fall from 1.3 percent down to 1.1 percent. The Department of Labor assigns a UI tax rate to employers on a sliding scale between the top and bottom rates.
“Our unemployment trust fund has been slowly, but steadily, recovering from the impacts of the recession. The rate reduction and the sunset of the one-week waiting period are both encouraging steps towards making Vermont more affordable for both businesses and Vermont’s labor force,” Labor Commissioner Lindsay Kurrle said in a news release.
The reduced rate will be noticed when the quarterly UI tax is collected on Oct. 31.
For 2017, the UI tax applies to the first $17,300 of wages paid to individual employees. That means employers paying the top rate of 7.7 percent will pay $1,332 annually for each employee earning that amount or higher. Controversially in Vermont, the UI tax applies to most independent contractors as well as employees.
The Department of Labor assigns the tax rate employers pay based on an “experience rating,” which is the frequency their employees are let go. For example, employers that use many seasonal employees may be assigned a higher UI rate than other employers.
Currently, about 22,600 employers pay into the trust fund for state unemployment benefits. What makes Vermont unique is that the tax applies to companies that use outsourced labor, resulting in higher labor costs for firms working with independent contractors.
For employers who aren’t sure which of their workers are taxed under the unemployment insurance program, the state offers an “ABC test” to reveal if a worker is considered “an employee” under Vermont law. The test’s broad net classifies the vast majority of independent contractors as “employees” for the purposes of unemployment insurance.
“It really is a challenge in Vermont to truly be an independent contractor unless you are an LLC or some of other corporate entity,” William Moore, president of the Central Vermont Chamber of Commerce, told True North in an interview.
Moore said the easiest part of the test is Part C, which says an independent contractor must be an independent corporate entity to avoid getting counted as an employee. This was clarified through a state Supreme Court ruling late last month.
However, Part B says that for a worker to be counted as an independent contractor not subject to the tax, the work provided must be outside the normal purview of the company’s typical operations. For instance, if the worker is painting a house for a company that specializes in home repairs, this work might not be considered different enough to qualify for independent contractor status.
Part A states the worker must operate completely on his or her own schedule, direction and resources. If a worker is given supplies, instructed on when to show up, or is otherwise being managed like the firm’s employees, independent contractor status could be denied.
Moore stressed that A and B are the real challenges in the law.
“Am I free from the employer’s control or direction? Does he tell me when to come to work? Does he provide me with the tools I need? Things of that sort, and if the employer does anything to control or direct the project, then I’m an employee.”
For employers hoping for a relaxing of the ABC test, Moore says the issue has hit a stalemate at the Statehouse. Democrats and Progressives strongly support offering unemployment compensation to as many workers as possible.
“I think (employers) are tired, I really do,” Moore said. “They want us to come to an agreement with the other side, (but) the other side doesn’t want to move off anything.”
Dirk Anderson, general counsel for the Vermont Department of Labor, said employers are concerned about audits.
“(They worry that) if they were audited for unemployment insurance purposes, the unemployment insurance auditor might pick that individual up as an employee rather than a contractor, and that would lead to an assessment of back taxes.”
He also said there have been several attempts in the Legislature to take a more clear definition of contract workers.
“Legislation has approached that from a number of ways, and historically none of those bills have ever passed,” Anderson said. “There are people who feel the current tests are just fine and we should keep it. And the department, we are happy to work with both sides to reach some sort of legislative solution that amends the test so long as any amendment provides people with clarity.”
Anderson explained some of the criteria used to determine who gets benefits and how much. Department officials look back at what they call the base-period, which is the first four of the last five earning quarters. A certain amount of wages must also be paid.
Workers should have made at least about $2,600 during one of these four quarters, and then at least 40 percent of that amount during the other three.
Cameron Wood, Director of Unemployment Insurance and Wages for the Vermont Department of Labor, also commented that this issue of defining a contract worker has been going on for some time.
“I think everyone involved in this topic wants some clarity and wants some guidance,” he said. “That is something that we have been discussing internally — how we provide that guidance going forward, whether it’s under the test that we currently use, the ABC test, or whether there is any change to that test.”