Wisconsin Manufacturers and Commerce
501 E. Washington Avenue
Management: James Buchen, Bob Oyler, Earl Gustafson, Ed Lump and Daniel Petersen
Labor: Dennis Penkalski and Bob Lyons
Chair: Greg Frigo
Department staff present: Carol Laudenbach, Michelle Kho, Carla Breber, Andrea Reid, Brian Bradley, Len Wroblewski, (joined in progress: Bob Whitaker, Tom Smith and Dick Tillema)
Others present: Robert Anderson of Wisconsin Council on Children and Families, John Metcalf of WMC, Mary Lang Sollinger of Pillow Montage, NPC , Michelle Rutta of Your Heart’s Content, Inc., Kathy Khamphouy of United Refugee Services of Wisconsin, Inc., Kristy Hammes of Chrysalis, Inc.
[NOTE: The recording is very poor. Much of Ms. Lang Sollinger’s presentation is too quiet to be fully transcribed.]
Frigo called the meeting to order, introduced Andrea Reid, the new Bureau Director of Tax and Accounting, noted the plaque had been ordered and presented on behalf of the UIAC to retiring Bureau Director of Tax and Accounting, Mary Anderson, at a retirement luncheon.
Frigo then introduced Mary Lang Sollinger who wished to address the UIAC concerning a UI law change proposal.
Lang Sollinger introduced Michelle Rutta and indicated that she had started a new business employing people in their homes who did not work in the traditional working place. Rutta showed the council members samples of her product.
Lang Sollinger addressed a section of UI law involving the independent contractor (IC) provision [(SS. 108.02(12)], said it does not address unskilled workers, the stay-at-home workers. There is a strong Hmong population in the state to which will soon be added 2,000 more. Due to cultural differences, these people are not able to obtain work through the traditional hiring practices. Lang Sollinger talked about the difficulty of working women to find, obtain and afford childcare. Working at home would largely eliminate this difficulty. Addressing the needs of this population of workers would also alleviate their need for public assistance.
Lang Sollinger and Rutta were speaking as mothers, speaking for single mothers and stay-at-home mothers. Lang Sollinger asked the council not to underestimate the role of those who stay at home. Lang Sollinger referred to her handouts which list the benefits of changing the independent contractor section of WI UI law (see attached) and stated that WI has lost a lot of jobs to overseas trade but since the jobs lost were in small businesses without the benefit of political lobbies no big splash was made about such losses.
Lang Sollinger asked for a change to UI law to help these refugees and protect their children.
Rutta then addressed the council. Rutta owns a wholesale gifts catalogue company. All her products were formerly 100% made in the USA, but employee costs were too high. Now, 90% of the catalogue products are made overseas. She asked for the Council’s help.
Frigo asked what prompted this proposal: Rutta stated that she was audited by the UI Division, who found her workers to be employees, not IC’s. Rutta truly believes they were all IC’s. These U.S. workers are no longer working for the company.
Frigo noted UI taxes are not high, especially with stable employment, low worker turnover. Rutta said it is a problem for all small business, that employees under UI law are considered employees by all other government agencies. Frigo disagreed, noted that the UI’s IC test is based on the WI Worker’s Compensation (WC) law, but the Federal IRS uses a different test to determine who is an IC. The different tests could yield different results.
Frigo explained that a state UI tax exemption would not exempt her from FUTA (Federal Unemployment Tax Act) tax on at-home employees. Bradley agreed. Frigo urged her to consider the federal and state aspects of her proposal.
Frigo introduced Kathy Khamphouy. She said that workers’ inability to speak English is the foremost barrier to employment for these workers, especially among the women, who must also care for their children.
Frigo introduced Kristy Hammes of Chrysalis, Inc, a for-profit corporation that provides work-related/vocational services to persons with serious mental illness, people who have the most trouble entering the competitive work force. Hammes said that Chrysalis could provide work for 3 or 4 workers in their workshop if exempted from UI coverage.
Frigo asked if the same workers would be working for years or if she envisioned rotating various individuals for shorter periods of time. Hammes said either scenario could be done. Frigo asked how workers would be paid. Hammes said they would be paid per project.
Buchen advised Lang Sollinger, Rutta, Khamphouy and Hammes to define the types of employment that they wish to exempt, suggested that re-structuring the work could meet the criteria for IC. Hammes said it is open to interpretation. Buchen suggested the work setting, a shelter, could help define the employee exemption they seek.
Lump asked for an estimate of the number of workers in this category statewide who would be exempted. A council member asked how many such workers are we talking about. Do any of you have a statewide figure? Lang Sollinger had no answer, but is working on getting one. Others commented. Frigo said a statewide number was needed.
Lump noted someone had suggested 2-4 workers, but also mentioned having 50 workers, asked if the proposed exemption would apply to all. No, only 4-8 workers. Frigo asked, Khamphouy commented on a potential influx of new Hmong refugees.
Gustafson asked how Lang Sollinger, Rutta, Khamphouy and Hammes got together, through United Way or other similar organizations. Lang Sollinger’s and other’s responses are mostly inaudible. Lang Sollinger said the proposal was a win-win situation.
Oyler said they really need to define to workers to be exempted. Lang Sollinger commented. Peterson asked if she wanted to change the IC definition for all tax areas or just UI. He noted several extant IC standards, commented on the IC standard for assessing the potential for profit or loss, commented on estimated income tax payments required of IC’s, which might be a problem for their targeted workers to meet.
Peterson said cost seemed to be the primary concern, that increased employee costs were driving up product prices. Peterson noted that, in his 3 years on the Council, 80% of requests to the Council ask for increased UI coverage rather than UI exemptions. He said some exempted workers later complained that they did not want to be UI-exempt. He said Lang Sollinger’s proposals’ primary beneficiary seemed to be the business owners, not the workers.
Penkalski said IC issues have dominated Council issues over the last five years, noted obtaining balance is really tough. Lang Sollinger understood his concerns. Penkalski said the Council wants to avoid creating a substandard class of workers without a real opportunity for advancement.
Lump noted the employer pays UI taxes and the workers are potentially eligible for UI benefits, asked if they were concerned that as IC’s, their former workers would not be UI eligible. Rutta said it was a concern but noted IC’s are choosing to become self- employed when they take the job.
Penkalski asked for a statewide fiscal impact estimate. Rutta asked what costs? Penkalski noted that 2,500 exempted workers would mean a big decrease in UI tax collections. [Penkalski, Rutta, Khamphouy discussion is mostly inaudible.] Penkalski wondered if creating more IC’s would help or hurt people in the long run.
Frigo asked again if the petitioners wanted an exemption for all at-home workers, refugees, disabled, noted the potential for companies using at-home workers to be able to avoid paying the UI taxes and maintain a great profit. Rutta said she could accept where the Council would draw the line, said her proposal was thinking out loud.
Lyons noted the potential for tens of thousands of exempted workers of varying skill levels and income.
(end tape side one)
Lyons pressed for a narrow definition, warned against a blanket exemption for rapidly growing number of at-home workers. Rutta repeated that she was thinking out loud. Lyons noted the difficulty for the Council and Legislature of defining the exempt workers by language barriers or educational status, warned that their exemption could lead to more petitions for exemptions for increasingly more skilled at-home workers.
Lump appreciated their bringing up the issue, addressed workplace successes of thousands of workers with language barriers.
Penkalski explained the discriminatory cannery worker UI exemption and the difficulty fixing it. Lang Sollinger commented on defining the population. Frigo said UI has staffers to help make calculations and estimates, answer questions and doubts. Frigo said UI exemption is cleaner than changing the IC provision, commented on the variety of at-home workers. Peterson asked how she would distinguish her group from the at-home worker group in general.
Lump noted cultural and language barriers and piecework workers conjured undesirable sweatshop images. Lang Sollinger was not interested in exempting sweatshops. Lump said it could be an unintended consequence.
Gustafson asked if the administrative burden or UI tax payments were the problem. Lang Sollinger and Rutta said both. Lang Sollinger and Rutta comments are mostly inaudible. Gustafson suggested more policy study, suggested academics or think tanks could provide help in defining their proposal, noted Wingspread Conference. Frigo suggested the La Follette Institute, said some research could be helpful.
Frigo commented on the UI bill progress, noted the Joint Finance Committee [JFC] had scheduled action today, but had not convened as of the start of the Council meeting. Buchen got a call, had to leave, to address an amendment to the bill, AB 668. Frigo noted the Dept. had asked Rep. Nass to amend the bill to fix some effective date problems caused by delays in passing the bill. The amendment also adds the Council’s approved non-charge for suitable work/federal training inadvertently left out of original bill.
Frigo said the JFC was concerned about a Republican (Nass) putting in an amendment. Buchen said he explained the "technical" amendment, now JFC wants letter from the Council approving the amendment. Frigo said the Social Security (SS) offset change was merely technical, at the drafter’s suggestion, to clarify a provision changed in the last UI bill and satisfy the feds.
Gustafson was shocked at partisan distrust. Buchen noted the difficulties of having labor committee chairmen who are not as experienced and are not as supportive of the Council as past chairmen. Lyons joked that the bill would have been more difficult to get passed if it had more provisions. Laughter and jest ensued.
Buchen said the Senate committee chair has stronger feelings about the bill, wants to introduce a substitute. He said the substitute has no support and leadership is working with him. Buchen suspected things would work out, the Assembly bill would likely go through both houses, predicted the Assembly would pass the bill tomorrow, possibly pass the Senate too.
Frigo asked, Buchen noted that JFC wanted the Council letter tomorrow. Frigo noted the lack of a quorum without Lump. Buchen said the letter does not require formal Council action, noted the letter need only state that the Council approves the bill as amended, which merely reconfirms the Council’s prior agreement. Frigo said, without objection, he would draft a letter on behalf of the Council. Buchen said he would contact Phil and David [AFL-CIO’s Neuenfeldt and Newby?] and to get a joint memo on letterhead to present to JFC.
Frigo asked Smith to summarize the UI bill amendment. Smith explained the retroactive non-charge for approved training, approved by the Council on Oct. 30, but omitted by the LRB. Smith described the SS offset law change, at US DOL request, to clarify that the offset was in consideration of the worker’s contribution to SS pension system. Smith said all other changes are related to original effective dates assuming passage before Jan. 1, 2004.
Frigo said he would draft letter to JFC on the Council’s behalf. Buchen suggested the letter go to Labor Committee chairmen to give to JFC. Tillema asked an inaudible question. Smith noted Rep. Schooff wanted the letter to come to the JFC committee. Frigo and Buchen agreed the letter could go to both labor committee chairs and the JFC.
Frigo introduced acting UI Admin. Bob Whitaker, noted former UI Admin. Clingan had been moved to DWS. Frigo said at some point a new UI Admin would appointed, but such an appointment did not seem imminent.
Frigo introduced Laudenbach’s update of the sequential charging (SC) proposal. Laudenbach reviewed the Dept.’s prior presentation then addressed the Council’s concern with non-charge issues, administrative cost savings, workload reduction potential, asked if the Council would give a thumbs up or down to the proposal.
Laudenbach noted Tillema’s research estimated non-charge/balancing account savings of 2.5% of all UI benefits paid. Buchen asked, Tillema clarified the amount and location of the savings. Buchen noted a trend that solvency tax deposits are not meeting balancing account withdrawals, asked if SC would solve the problem.
Laudenbach said SC would result in fewer claim investigations, but only half the presumed 25% fewer. She noted most states don’t investigate eligibility as precisely as Wisconsin does, commented on philosophical differences in proportional employer charging. She said most states charge only the most recent separated employer and forget about the others, figuring that employer may pay more on some claims but less on others, balancing in the long run.
Laudenbach described the workload investigating issues with claims that resulted in charges to latter employers in the sequence. She predicted that in 89% of cases the issues could be resolved before the next employer was charged, but benefits could be delayed in the middle of some claims. She expressed discomfort with the potential for payment delay. She noted employers and employees now know their full liability and benefit, unsure employers would be comfortable with the uncertainty of SC.
(end tape side two)
Laudenbach said that, in most cases, SC would reduce the time between employment and benefit payment. She said some employers are concerned about being charged for workers whose employment ended 18-24 months ago. SC would help with this concern.
Laudenbach asked if Council wanted to proceed with SC? Penkalski asked if SC would inhibit hiring, especially in the construction business, where employers might want to hire someone for a couple weeks – would they get charged more for benefits under SC? Peterson cited the lag period, said such a short employment would likely not enter benefit calculation, so SC would not be a major problem for construction for really short work periods.
Oyler said SC would disproportionately affect temporary staffing businesses. Laudenbach noted claimants who have temp jobs early in their claim get more stable, long-term jobs, said charges could go favorably or unfavorably for temp staffing businesses.
Oyler agreed the odds are even, but reiterated his contention that SC would disproportionately affect temporary staffing businesses. Laudenbach said 54-56% of claimants have only one employer in the base and lag periods, said Oyler’s scenario, claimants with multiple employers, is less common.
Frigo asked about how a change to SC would interface with EnABLES changes. Laudenbach said re-design for investigation would begin in Aug. 2005, the point at which UI law is most crucial. Frigo said a Council decision would be needed before that time.
Oyler asked if programming for SC would cost more than programming for the current charging schema. Laudenbach said that difference, if any, would be hard to calculate, but having an advance decision on SC would be most beneficial. She said reprogramming to accommodate SC would be more expensive.
Frigo asked if the Council wanted to proceed with SC. Lyons joked that labor just wanted benefits paid, didn’t care who got charged. Buchen expressed management’s interest in pursuing SC.
Metcalf noted the Legislature’s interest in SC due to constituent complaints. Frigo commented on common complaints against proportional charging: worker has part-and full-time jobs, loses full-time job, part-time employer gets charged. Lyons noted the need to be sensitive to the Legislature, but said lawmakers will still hear complaints from employers perceiving adverse effects of a new charging system. Laudenbach said they had anticipated such a scenario.
Gustafson asked about claimants with two base period employers, with disparate wages, under SC: when charges shift from the first employer to second, would their benefit amount change? Laudenbach said no, the difference would be resolved by duration. Peterson noted the larger amount would be charged to the smaller account, but for a lesser time period.
Laudenbach said the benefit liability is constant, but the accounts would be charged over different time periods, and an employer could be liable for less than the benefit check amount. Oyler said secondary employers would be charged full benefit amount for a lesser period of time.
Laudenbach commented on scenarios of employers’ with divergent maximum benefit liabilities, felt employers would not be upset at being charged the maximum in 2 checks or 26 checks. Oyler argued that a smaller amount over a longer period of time could be cheaper if the claimant is re-employed sooner. Oyler related a past experience with SC, said it was not worth employing types of people who could work a certain number of weeks, quit with good cause and collect benefits.
Peterson said most of their layoffs draw the maximum benefit amount, said their biggest problem is getting charged for benefits for a claimant who has not worked for them for a year, who may have quit to take another job. Laudenbach said the last scenario would be a non-charge to the quit employer. The benefits of SC depend on the business.
Frigo said the Dept. could investigate whether temp staffing businesses would be disproportionately affected. Oyler intuited that other industries would be adversely affected, where there is high employee turnover.
Frigo noted that employer input on the effect of SC could be solicited at upcoming UI public hearings, said other issues could be noticed to solicit public comment, noted meager attendance at public hearings. Buchen suggested including the Baby UI proposal in the hearing notice to attract attention. Jokes and laughter ensued.
Frigo felt Council was still interested in SC so the Dept. would continue to study it. Frigo said end of March in Madison would be the soonest public hearings could begin, mid-May in Milwaukee, early July in Appleton, August in La Crosse. Frigo suggested Council meetings contemporaneously with hearings, suggested fewer Council meetings until the Fall, followed thereafter by 4-5 week frequency for meetings. Frigo suggested polling members on the proposed hearing schedule.
Gustafson commented on the geographic disparity between Appleton and La Crosse, access from the north. Peterson commented on Eau Claire and Green Bay last year. Frigo commented on other locations considered and locations of previous hearings. Gustafson suggested Wausau, Stevens Point, Marshfield, skip Appleton. Frigo said no sites were firm, Wausau may sub for La Crosse. Penkalski asked about five hearings. Frigo said it was possible, but extra work.
Frigo noted past strategies for drawing people to public hearings had been relatively unsuccessful, asked for suggestions for notifying employers and associations. Gustafson, Buchen suggested weekly papers could be inexpensive and effective. Gustafson suggested communications strategies. Frigo said members would be polled individually as dates are set.
Frigo asked about soliciting input on topics, besides SC. Several suggestions were made, mostly in jest, including indexing and benefit waiting period.
Frigo asked about topics for future meetings. Penkalski mentioned an old study about soldiers returning from Iraq, to see if UI benefits were adversely affected by lower military wages. Frigo unsure of progress, promised to return to the topic. Oyler asked about change in professional employer organizations (PEO), said PEO’s are now complaining about being rejected for employer status. Buchen suggested a study of labor standards determinations of similar work.
Peterson asked about reviewing the absenteeism-tardiness issue, recalled several public comments from previous public hearings. Frigo said that noticing specific items might draw people to hearings. Buchen suggested reviewing topics mentioned at prior Council meetings. Frigo said those issues could be recovered.
Someone mentioned UI extended benefits (EB). Frigo said the Council position has been to favor a federal extension. Buchen noted the state still has an EB trigger. Buchen, Frigo, Tillema comment on the current unemployment rate, proximity to the EB trigger (Tillema’s comments are mostly inaudible.) Buchen noted $50 million more in employer UI taxes since changing the tax schedule. Gustafson comments.
Frigo said it is too early to know if there will be a schedule change next year, dependant on tax receipts. Tillema comments on 1Q04 tax receipts, guessed at June 30 balance. Frigo asked about Schedule B’s effect on employers, promised to look into it for the next meeting. Peterson comments.
Frigo noted the meeting agenda had more, less critical items, including a workload report, asked members if they wanted to carry over those items. Laudenbach distributed a handout. Frigo suggested members review the handout and hear a report at the next meeting. Members expressed no urgency to finish the agenda items today.
Frigo said members would be apprised of action on the UI bill, expressed hope that the bill was on the right track, said members would be polled about the next meeting, to be in conjunction with the public hearing in March.
Petersen asked about letters to the Council, asked if they were current. Smith said they were all pretty old. Buchen asked about follow up on a letter from Rep. Vruwink about military personnel. Smith said he had not followed up, but would follow up to inform her that the Council had decided not to pursue her suggestion. Buchen said lawmakers complain that the Council asks for suggestions but does not respond.
Frigo said the Dept. response to Sen. Roessler told her that her issue required a federal law change, but that constitutional issues may make that impossible. Frigo said Roessler has not responded. Buchen asked about a letter from Rep. Balow. Smith noted Balow had asked for UI benefits for self-employed.
Frigo asked if members wanted to discuss the letters, noted some issues are complex, like the Rep. Gundrum letter. Frigo suggested a response noting the Council is looking at the charging issue. Frigo said the Council has resolved Vruwink’s military transfer proposal, a response letter is all that is required.
Frigo said the Council had not recently addressed the Balow proposal, noted the Rep. Jensen proposal had been rejected. Buchen commented on former Council member Peck’s objections to the proposal.
Petersen asked how it related to earlier presentation [Lang Sollinger, et al.], where the business starters could collect UI benefits, but their at-home workers could not. Buchen asked how that presentation concluded, noted that he had been out of the room. Frigo explained that the issue needed studying, particularly how to narrow the exemption to effect only the target group. Frigo speculated that all home workers could not be excluded, as the presenters had suggested, due to unintended effects. Frigo noted using education level as a narrowing criterion was questionable.
Buchen said it was ironic that they were seeking a UI benefit exclusion for workers at the margins of the economy. Lyons said that would make it easier to create more jobs like that. Petersen felt they were only asking for a cost reduction, similar to asking for a reduced minimum wage.
Frigo noted that the disabled and mentally ill group, for which they sought an exclusion, was distinct from the less-educated group. Lump commented on the presenters’ for-profit status. Petersen said their proposal had four distinct concepts, not all related to home work.
Laudenbach noted her contact with a group of child-care providers working under county auspices, where the county finds day care providers for their customers. She noted lengthy discussions about which is the employer.
Frigo noted an increase in such cases: DWD pays counties to find day care providers for W-2 participants, then counties subcontract with agencies to find day care providers. W-2 officials represent the day care providers as IC’s. But not all are IC’s under UI law. DWD, counties do not want to be the employer. It makes no sense to tax the W-2 participants as the employer.
Frigo said UI is struggling case by case, though a recent ALJ decision suggested the W-2 participant is the employer. Frigo noted a similar dilemma the Council had fixed for disabled persons who hire personal aides. Gustafson noted the someone must be the employer.
(end tape side three)
Buchen and Frigo are discussing day care establishments. Smith noted DHFS formerly certified day care providers for 4 or more kids, but there was no certification for less than four; in those cases, the counties were found to be the employer. But now, state law Chapter 55 certifies day care providers for 1-3 kids; counties say they are only reimbursing state-certified providers through W-2, and the law supports the counties’ contention that they are not employers.
Laudenbach said the providers the county finds are sometimes day care customers or a grandmother of a customer. Buchen said that if he hired a day care provider for his kids, that he should pay the UI tax, noted that he does not employ such a provider. Frigo noted they would be domestic employees, commented on some presidential employees who had failed to pay required employment taxes for domestic employees.
Frigo asked about the Rep. Balow letter, if the Council was interested in further study or a meeting with Balow. Buchen said the issue had already been decided, after lengthy study, suggested a letter to that effect, explaining the Council’s concerns and proposing that he address the Council if he wishes to pursue it.
Frigo said an invitation to address the Council should be included in any response to a lawmaker’s letter, such as the Rep. Gundrum and Sen. Lazich letters. Smith noted that Lazich had been invited to address the Council and asked for more specific constituent information to address the problem, but Lazich never responded. Frigo suggested following up again.
Penkalski asked about a letter about a worker for a teacher’s center. Frigo noted his reply letter had suggested it was a Constitutional issue decided by a US Supreme Court ruling that UI coverage could not be required of a church entity, that a federal remedy was needed, no state remedy existed.
Penkalski noted that the worker was not on church property. Smith said the law applies to a church-operated facility. Gustafson asked if a church-sponsored school is exempt from UI law. Frigo said yes. Frigo noted some churches, like Catholics, have their own UI system. Smith said some had elected voluntary coverage. Frigo understood the worker’s concerns, but the state cannot compel a church to provide UI coverage.