A recent state Supreme Court decision lets independent contractors register as limited liability corporations and forego the requirement of unemployment insurance, but so far the ruling has had little impact on the number of contractors applying for LLC status in Vermont.
According to the Secretary of State’s office, the number of new LLC formations was flat for the summer months, with 452 applications in June, and 417 and 477 applications, respectively, for July and August. The numbers were slightly lower than earlier months, and flat year-over-year.
Despite the steady LLC filing activity, Bill Moore, president of the Central Vermont Chamber of Commerce, said the court ruling helps prospective employers and independent contractors alike.
“By not requiring me to create that person as an employee, as long as I know the law and they know the law, we can communicate and compartmentalize our particular duties under the law, and it certainly streamlines that,” he said.
In Vermont, employers must make quarterly unemployment insurance tax payments for independent contractors and employees, as state law defines most independent contractors as employees for the sake of unemployment benefits. Critics say the policy creates a powerful disincentive for employers to work with independent workers.
Moore said the court’s June 23 ruling allows independent contractors and employers to get back to affordable labor agreements, and that when it costs less for companies to hire contractors, those savings will likely be passed along to consumers in the form of lower priced goods and services.
He also suggested that the state could be doing more to make workers and employers aware of the new policy.
“I would wonder where the Secretary of State’s office and their corporations division is with regards to notifying people who have filed for self employment, self-proprietorship, and Schedule Cs in the past.”
Cameron Wood, director of Unemployment Insurance and Wages for the Department of Labor, said the department has been making some effort to alert people.
“We have reached out to some stakeholders who are prominent in the labor community, and we are working on some draft guidance for specific areas of the Vermont economy. [But] I don’t know that there’s any massive outreach to let employers know this is happening.”
Lindsay Kurrle, commissioner for the Vermont Department of Labor, said the ruling adds clarity where there was confusion.
“With respect to unemployment insurance, I think what this ruling gives us is, it gives people who want to be independent the ability to act as an independent contractor,” she said.
“It’s like an understanding, and therefore somebody hiring them wouldn’t be paying an unemployment tax on that person. That being said, if the work were to, say, dry up, the LLC would not have the recourse of filing for unemployment benefits.”
State Rep. Jean O’Sullivan, D-Burlington, ranking member on the House Committee on Commerce and Economic Development, said the core debate over of independent contractors going forward is not unemployment insurance, but rather workers’ compensation.
“It’s the thorniest labor relations issue in every legislature,” she said. “It’s substantially more expensive — it costs about 15 to 20 percent of the salary to employee someone.”
O’Sullivan said the reason for the flat LLC filings numbers may be that independent contractors are waiting to see how workers’ compensation will be handled before making the jump to LLC status.
“It makes sense to me because at this point we are still in a murky area,” she said.
O’Sullivan also said there seems to be a shift in the workforce that might affect how things play out. For example, the technology industry contains groups of independent contractors who will come together for years at a time for a project before breaking up and moving on.
“So we are looking at a different way that we work,” she said. “It’s not just about Uber, it’s all the tech economy and what they call the gig economy.”
Commerce and Economic Development Committee Vice Chair Rep. Mike Marcotte, R-Coventry, said lawmakers don’t want the court ruling to result in the wrong people being pressured into becoming LLCs.
“We’ve got to be careful to make sure those types of things don’t happen,” he said.
He added that if people want to become their own boss and have their own business, he doesn’t want to discourage that either.
Committee member Rep. Charles Kimbell, D-Woodstock, questioned whether Vermont was at a competitive disadvantage regarding the cost of hiring contract workers.
“Our legal staff has provided us with different definitions used by different states, and it’s hard to know just from that if it has made it more expensive to do business in Vermont than it did in other places,” he said.
Rep. Bob Frenier, R-Chelsea, said he met last week with the governor’s office staff regarding further clarification for the June ruling.
“We want to gather together all the players in this to try and coordinate a response to the ruling so that it’s consistent with the labor department and insurance industry,” he said.