HR53

WHEREAS, the "underground economy" generally refers to those individuals and businesses that use various schemes to conceal or misrepresent their employee population to avoid one or more of their employer responsibilities related to wages, payroll taxes, insurance, licensing, safety, or other regulatory requirements; and

WHEREAS, the underground economy also encompasses other activities, such as tax evasion, payroll fraud, under-the-table work, and wage theft; and

WHEREAS, these activities may include but are not limited to paying wages in cash, skimming some or all of the cash takings, not paying overtime, paying sub-minimum wages, charging individuals for transportation and supplies essential to the work, underreporting the number of employees, misclassifying employees as independent contractors, forcing employees to set up shell subcontractor entities, running a part of normal business activities off-the-books, and not registering a business in order to avoid tax obligations or avoid obtaining the necessary licenses and insurance policies; and

WHEREAS, the health of Hawaii's economy, its workers, and its businesses are harmed by the existence of an illegal underground economy in which individuals and businesses conceal their activities from government licensing, regulatory, and taxing authorities; and

WHEREAS, individuals and businesses that operate in the underground economy do so in violation of labor, employment, tax, insurance, and occupational-safety laws by failing to pay required wages; carry workers' compensation insurance; comply with health, safety, and licensing requirements; or pay income taxes and payroll taxes that fund unemployment insurance, disability insurance, and Medicare and Social Security benefits; and

WHEREAS, certain businesses also improperly classify their employees as independent contractors and hire undocumented workers to avoid compliance with labor, employment, tax, insurance, and regulatory requirements; and

WHEREAS, the underground economy, particularly the practice of employee misclassification:

(1) Exploits vulnerable workers and deprives them of legal benefits and protections;

(2) Gives unlawful businesses an unfair competitive advantage over lawful businesses by illegally lowering violators' taxes, wage costs, and other overhead costs;

(3) Defrauds the government of substantial tax revenues; and

(4) Harms consumers, who suffer at the hands of unlicensed businesses that fail to maintain minimum levels of skills and knowledge; and

WHEREAS, in 2016, federal and state agencies formed ad hoc task forces that were instrumental in enforcing wage laws against employers who were found guilty of misclassifying employees; and

WHEREAS, Hawaii faces an underground economy that has deprived the State of significant amounts of tax revenue; and

WHEREAS, the State needs a comprehensive, unified strategy and approach toward protecting Hawaii's economy, its workers, and its businesses from the illegal underground economy; now, therefore,

BE IT RESOLVED by the House of Representatives of the Thirty-second Legislature of the State of Hawaii, Regular Session of 2024, that the Department of Labor and Industrial Relations is requested to convene an interagency enforcement task force to combat the underground economy and employee misclassification; and

BE IT FURTHER RESOLVED that the interagency enforcement task force is requested to be established within the Department of Labor and Industrial Relations for administrative purposes; and

BE IT FURTHER RESOLVED that the Director of Labor and Industrial Relations, or the Deputy Director of Labor and Industrial Relations, is requested to serve as the chairperson of the interagency enforcement task force and to invite the following individuals to serve as members of the task force:

(1) A representative of the United States Department of Labor's Wage and Hour Division's Honolulu District Office;

(2) The Director of Taxation, or the Director's designee;

(3) The Attorney General, or the Attorney General's designee;

(4) The Administrator of the Disability Compensation Division of the Department of Labor and Industrial Relations, or the Administrator's designee;

(5) The Administrator of the Hawaii Occupational Safety and Health Division of the Department of Labor and Industrial Relations, or the Administrator's designee;

(6) The Administrator of the Unemployment Insurance Division of the Department of Labor and Industrial Relations, or the Administrator's designee;

(7) The Administrator of the Wage Standards Division of the Department of Labor and Industrial Relations, or the Administrator's designee;

(8) The Division Administrator of the Professional and Vocational Licensing Division of the Department of Commerce and Consumer Affairs, or the Division Administrator's designee;

(9) The Complaints and Enforcement Officer of the Regulated Industries Complaints Office of the Department of Commerce and Consumer Affairs, or the Complaints and Enforcement Officer's designee;

(10) The Executive Director of the Office of Consumer Protection of the Department of Commerce and Consumer Affairs, or the Executive Director's designee;

(11) The director of the planning and permitting department of each county, or their respective designees; and

(12) Any additional representatives from federal, state, or county agencies as deemed appropriate by the chairperson; and

BE IT FURTHER RESOLVED that the Department of Labor and Industrial Relations is requested to serve as the lead agency to coordinate joint efforts to combat the underground economy and employee misclassification to:

(1) Ensure safe working conditions for and proper payment of wages to workers;

(2) Create an environment where legitimate businesses can thrive; and

(3) Support the collection of all taxes, fees, and penalties due from employers; and

BE IT FURTHER RESOLVED that the interagency enforcement task force is requested to serve as an advisory and enforcement body to combat the underground economy and employee misclassification to:

(1) Strengthen compliance with the law by educating business owners and employees about applicable requirements;

(2) Conduct interagency, targeted investigations and enforcement actions against violators;

(3) Protect the health, safety, and rights of workers; and

(4) Restore an environment of equal competition for law-abiding businesses; and

BE IT FURTHER RESOLVED that the interagency enforcement task force is requested to:

(1) Serve as the State's interagency advisory and enforcement entity, with representation from state and county government agencies, to combat the underground economy and employee misclassification;

(2) Facilitate the timely sharing of information between and among task force members, including through the establishment of protocols by which participating agencies will advise or refer to other agencies matters of potential investigative interest;

(3) Identify industries and sectors where the underground economy and employee misclassification are most prevalent and target task force members' investigative and enforcement resources against those industries and sectors, including through the formation of interagency investigative and enforcement teams;

(4) Assess existing investigative and enforcement methods, in Hawaii and other jurisdictions, and develop and recommend strategies to improve those methods;

(5) Encourage businesses and individuals to identify violators by soliciting information from the public, facilitating the filing of complaints, and enhancing the available mechanisms by which workers can report suspected violations;

(6) Solicit the cooperation and participation of prosecutors at the federal, state, and county levels and other relevant federal, state, and county enforcement agencies, including the United States Department of Labor, and establish procedures for referring cases to prosecuting authorities as appropriate;

(7) Work collaboratively with employers, labor, and community groups to diminish the size of the underground economy and reduce the incidences of employee misclassification by, among other means:

(A) Disseminating educational materials regarding applicable laws, including the legal distinctions between independent contractors and employees; and

(B) Increasing public awareness of the harm caused by the underground economy and employee misclassification;

(8) Work collaboratively with federal, state, and county social-services agencies to provide assistance to vulnerable populations that have been exploited by the underground economy and employee misclassification, including but not limited to immigrant workers;

(9) Identify potential regulatory or statutory changes that would strengthen enforcement efforts, including any changes needed to resolve existing legal ambiguities or inconsistencies as well as potential legal procedures for facilitating individual enforcement efforts;

(10) Consult with representatives of business and organized labor, members of the Legislature, representatives of county governments, community groups, and other agencies concerning the activities of the task force and its members and ways of improving its effectiveness, including whether to establish an advisory panel under the Department of Labor and Industrial Relations;

(11) Submit an annual report, no later than twenty days prior to the convening of each Regular Session, to the Governor, Legislature, mayor of each county, and chairperson of each county council that summarizes the task force's activities during the year; provided that the annual report:

(A) Describes the task force's efforts and accomplishments during the year;

(B) Identifies any administrative or legal barriers that impede the more effective operation of the task force, including any barriers to information-sharing or joint action;

(C) Proposes, after consultation with representatives of business and organized labor, members of the Legislature, representatives of county governments, community groups, and other agencies, the appropriate administrative, legislative, or regulatory changes to strengthen the task force's operations and enforcement efforts and to reduce or eliminate any barriers to those efforts; and

(D) Identifies successful preventive mechanisms to reduce the extent of the underground economy and employee misclassification, thereby lessening the need for greater enforcement; and

(12) Take appropriate steps to publicize its activities; and

BE IT FURTHER RESOLVED that to the extent permitted by law, every agency within the State's and each county's executive branch is requested to make all reasonable efforts to cooperate with the interagency enforcement task force and to furnish any information and assistance as the task force reasonably deems necessary to accomplish its purposes; and

BE IT FURTHER RESOLVED that the interagency enforcement task force is requested to regularly hold meetings that are closed to the public when task force members plan to discuss sensitive matters related to its investigations, potential criminal referrals, and public safety and security topics; and

BE IT FURTHER RESOLVED that certified copies of this Resolution be transmitted to the head of the United States Department of Labor's Wage and Hour Division's Honolulu District Office, Governor, Director of Labor and Industrial Relations, Director of Taxation, Attorney General, Director of Commerce and Consumer Affairs, mayor of each county, chairperson of each county council, and director of the planning and permitting department of each county.

	OFFERED BY:	_____________________________

Report Title:

Interagency Enforcement Task Force; Underground Economy; Employee Misclassification

HOUSE OF REPRESENTATIVES	H.R. NO.	53
THIRTY-SECOND LEGISLATURE, 2024
STATE OF HAWAII