Under changes proposed by the Alaska legislature, the Division of Workers’ Compensation may be merged with the Division of Labor Standards and Safety to establish a new Division of Workers’ Safety and Compensation. If this proposal becomes law, it would be the latest in a series of changes to the state’s workers compensation system.
Elected governor in November 2018, Mike Dunleavy (R) has said the state is facing a $1.6 billion budget deficit. He is proposing budgetary cuts to the tune of $1.8 billion. With more than 700 full-time state positions facing the axe, the restructuring of the Division of Workers’ Compensation may be seen as part of these changes. The new department would have an expanded remit, not only covering workers’ compensation but also investigating wages, payroll, and working conditions.
This change comes soon after last summer’s reforms to the state’s workers’ compensation system. In August, then-Governor Bill Walker (I) signed House Bill 79 into law. This sought to modernize workers’ compensation in the state. For example, it allowed documentation relating to compensation cases to be submitted electronically rather than by mail. Importantly, the bill also clearly defined the difference between an employee and an independent contractor.
“This bill strengthens the system through a series of smart reforms that will help prevent fraud and ensure the system is there when workers need it the most,” explained Rep. Andy Josephson (D-Anchorage), who carried the bill on the House floor. “Perhaps the most significant reform in the bill is to clearly define the distinction between independent contractors and employees. This clarification will help prevent good actors from going out of business from fines while making it more difficult for bad actors to fraudulently avoid paying workers’ compensation insurance.”
A key aim of House Bill 79 was to reduce workers’ compensation insurance fraud by stopping employers misclassifying employees as independent contractors. Since businesses are not responsible for paying workers’ compensation insurance for independent contractors, employers may misclassify workers to save money.
In January, I reported on the case of Texas company Alpha Mar. John Stergion, an employee of the company who misrepresented the number of people Alpha Mar employed in order to reduce the company’s workers’ compensation insurance premiums. The company was ordered to pay $250,000 to the Texas Mutual Insurance Company in unpaid premiums.
In California, Salvatore Carbone had claimed he was the sole employee of his two establishments, Carbone’s Bar and Sal’s Alley Side Café. In so doing, he avoided paying workers’ compensation insurance for his employees. Acting on a tip-off, the Worker’s Compensation Fraud Unit investigated; Carbone was found guilty of misrepresenting payroll to obtain reduced workers’ compensation premiums.
The changes in Alaska are set against the largest drop in workers’ compensation insurance premiums in 40 years. The changes, which came into effect this year but were announced in 2018, see the average premium rate drop by 17.5 percent. The drop in rates was the result of a reduction in medical costs and fewer claims being made. It is estimated employers will save around $35 million across the state in 2019.
“These proposed rate reductions are welcome news for Alaska businesses,” said then-Governor Walker announcing the changes last October. “Lower workers’ compensation costs reduce the burden on the small businesses that strengthen our economy.”
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