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F I S C A L I M P A C T R E P O R T

SPONSOR Rawson

DATE TYPED 3/1/2005 HB

SHORT TITLE Workers’ Comp Insurance Carrier Audits

SB 917

ANALYST Dunbar

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

Minimal

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Workers’ Compensation Administration (WCA)

SUMMARY

Synopsis of Bill

Senate Bill 917 requires insurance companies to report to the WCA concerning the number of

companies that, after policy-year-end audits, turn out to have more employees than they esti-

mated at the beginning of the year. The bill changes the standard of proof and required elements

with regard injunctions to enforce the mandatory insurance requirement. The bill requires the

WCA to report to the Taxation and Revenue Department and the Labor Department the names of

companies that have significant discrepancies between the estimated and actual number of em-

ployees

Significant Issues

According to the WCA, the proposed changes to the provision granting injunctive relief against

employers who fail to comply with the mandatory insurance requirement will make it harder for

the WCA to enforce this requirement and make both the WCA and the District Courts expend

substantially more resources in this enforcement program.

The requirement of reporting of employers that significantly underestimate the number of work-

Senate Bill 917 Page 2

ers neglects the fact that the majority of such underreporting incidents involve discrepancies be-

tween the employer and the insurer concerning the status of certain workers as employees or in-

dependent contractors. The reporting of these disputes, as indicated by WCA, will not aid the

agency in its enforcement efforts, nor will it aid TRD or DOL since they utilize different defini-

tions of independent contractor at present from the one imposed on WCA by case law.

PERFORMANCE IMPLICATIONS

WCA is concerned the bill will impact negatively on the ability of the agency to meet perform-

ance criteria. The changes in the injunction provisions will require full de novo evidentiary hear-

ings before the District Court. The current language only contemplates that the findings at the

administrative level on the operative facts will suffice for a prima facie showing necessary to

obtain relief. The result, as per WCA, is that personnel will be diverted from enforcement activi-

ties to go to Court much more often and those hearings that are currently scheduled for 5-10

minutes will require an hour or more of the District Court’s time.

Under these circumstances the number of employers brought into compliance with the manda-

tory insurance requirement is likely to be adversely impacted.

FISCAL IMPLICATIONS

Some small amount of additional travel expense may be anticipated. See “Performance Implica-

tions” for explanation of why additional personnel will be needed at hearings.

ADMINISTRATIVE IMPLICATIONS

The changes will require much greater attorney time on enforcement hearings. The Economic

Research Bureau will be required to create a mechanism for accepting and reporting statistics

about employers who misestimate their workforce. WCA states that it is unclear what the utility

of these statistics is, especially given the facts that the majority of such discrepancies arise from

disputes concerning the status of certain workers as independent contractors or employees, and

given that TRD and DOL use different definitions of independent contractor than does the WCA

(who has been given a definition by case law).

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

This bill relates to and is in conflict with HB653 (Park) that defines independent contractor for

all agencies.

TECHNICAL ISSUES

The WCA says the language changes on Section 52-1-62A appear to not support the overall in-

tent of the bill. They may have been intended as “clean up” but they actually totally change the

injunctive action from a statutory injunction based upon an administrative finding, to a full

blown de novo hearing in front of the District Court.

Senate Bill 917 Page 3

OTHER SUBSTANTIVE ISSUES

The Workers’ Compensation Advisory Council has not had an opportunity to review this bill.

Given that the source of the greater portion of the cases that this bill would require insurance

companies to report its disputes concerning the status of workers that could be addressed more

directly (HB 653); the WCA indicates, that it is unclear that the substantial expenses imposed on

the agencies and courts involved are counterbalanced by an increase in compliance with the law

by the employers who will be reported.

Lastly, the WCA notes, that due to interference with the present enforcement mechanism con-

cerning the mandatory insurance requirement and a failure to properly identify the target popula-

tion with the proposed statutory language, the bill is not workable in its present form.

BD/lg