Replies

1. 
   JerraldHayes | Jun 04, 2004 05:48am | #1

   El Taco, if he is going to ask you to fill out a timecard and supplying you with tools then You Are An Employee and NOT a sub or independent contactor and he probably paying you that way so he can dodge Worker Comp and the other obligations and employer has. Did he ask you to provide him with a liability insurance certificate?

   I just happened to be writing this with the intent of starting a new topic on it so I guess this is as good as time as any

   There is a page on the IRS site under tax Topics called Topic 762 - Independent Contractor vs. Employee that starts to help provide some information that can both help individuals understand if they are truly independent contractors or if there "employer" just spun them off so that they could dodge and avoid paying for Workers Comp insurance on them. And business owners can better understand if the people they are using are truly qualified in the eyes of the IRS as independent contractors so that they can avoid the trouble and penalties if somewhere down the road the IRS decides they are really employees.

   On that page is a link to a PDF document: Publication 15-A (PDF), Employer's Supplemental Tax Guide and starting on page 5 there is a a section entitled Employee or Independent Contractor? and in it they provide come common law rules regarding the classification as they relate to three categories that need to be considered:behavioral control, financial control, and the type of relationship of the parties. And then there are some examples provided specific to the Building and Construction Industry

   Example 1. Jerry Jones has an agreement with Wilma White to supervise the remodeling of her house. She did not advance funds to help him carry on the work. She makes direct payments to the suppliers for all necessary materials. She carries liability and workers' compensation insurance covering Jerry and others he engaged to assist him. She pays them an hourly rate and exercises almost constant supervision over the work. Jerry is not free to transfer his assistants to other jobs. He may not work on other jobs while working for Wilma. He assumes no responsibility to complete the work and will incur no contractual liability if he fails to do so. He and his assistants perform personal services for hourly wages. Jerry Jones and his assistants are employees of Wilma White.

   Example 2. Milton Manning, an experienced tilesetter, orally agreed with a corporation to perform full-time services at construction sites. He uses his own tools and performs services in the order designated by the corporation and according to its specifications. The corporation supplies all materials, makes frequent inspections of his work, pays him on a piecework basis, and carries workers' compensation insurance on him. He does not have a place of business or hold himself out to perform similar services for others. Either party can end the services at any time. Milton Manning is an employee of the corporation.

   Example 3. Wallace Black agreed with the Sawdust Co. to supply the construction labor for a group of houses. The company agreed to pay all construction costs. However, he supplies all the tools and equipment. He performs personal services as a carpenter and mechanic for an hourly wage. He also acts as superintendent and foreman and engages other individuals to assist him. The company has the right to select, approve, or discharge any helper. A company representative makes frequent inspections of the construction site. When a house is finished, Wallace is paid a certain percentage of its costs. He is not responsible for faults, defects of construction, or wasteful operation. At the end of each week, he presents the company with a statement of the amount he has spent, including the payroll. The company gives him a check for that amount from which he pays the assistants, although he is not personally liable for their wages. Wallace Black and his assistants are employees of the Sawdust Co.

   Example 4. Bill Plum contracted with Elm Corporation to complete the roofing on a housing complex. A signed contract established a flat amount for the services rendered by Bill Plum. Bill is a licensed roofer and carries workers' compensation and liability insurance under the business name, Plum Roofing. He hires his own roofers who are treated as employees for Federal employment tax purposes. If there is a problem with the roofing work, Plum Roofing is responsible for paying for any repairs. Bill Plum, doing business as Plum Roofing, is an independent contractor.

   Example 5. Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. She is to receive $1,280 every 2 weeks for the next 10 weeks. This is not considered payment by the hour. Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. She also performs additional electrical installations under contracts with other companies, which she obtained through advertisements. Vera is an independent contractor.

   Well that's as far as I got but then I guess I might as well post what I've got so far since you've brought up the topic we'll go with this as a start.

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   Edited 6/3/2004 11:02 pm ET by Jerrald Hayes

1. 
   Brbconst | Jun 04, 2004 06:41pm | #6

   Jerrald,

                  You seem to be on top of such issues. Maybe you could answer a question for me.

                 Recently, several place's I subcontract  from have been hit by the a state audit on WC. They ended up paying WC on every Sole proprietor who didn't cover themselves. One place in Particular ended up paying $15,000.00 . none of the subs get more than 50% of thier work from this one shop. All of us are available and do work for the public.  The state and insurance company are insisting they must pay WC on us or prove we have coverage.

             As a S.P. you can opt to cover yourself ( some may argue this, but yes, as an S.P. you can opt to obtain WC on yourself). Or, you can opt out. To me it seems it would be money better used towards a disability policy.  But the latest thing I've heard is that now some health insurance companies will not pay for injuries incurred while at work if you are self employed

1. 
   BillHartmann | Jun 04, 2004 07:13pm | #9

   "As a S.P. you can opt to cover yourself ( some may argue this, but yes, as an S.P. you can opt to obtain WC on yourself). Or, you can opt out."

   That all depends on state laws. Some you can, some you can't, some you have to.

   Likewise some state WC laws are based on the idea that EVERY PHYISICAL BODY on the construction site needs to be protected by WC. They don't really care who is a sub, who is an employee, who is a S.P. and they don't want to have to go through the effort of determining all of that. They let the tax people work about that.

   So they require every body to be covered by WC and the GC is charge for each body unless they have proof that the person is coverd by someone else policy or has an appropriate wavier (where allowed by the state laws).

2. 
   JerraldHayes | Jun 04, 2004 09:12pm | #10

   Brb, I can't really answer you definitively on any of that but I can offer you my interpretations, understandings, and opinions.

   A contractor friend of mine got hit and hit real real hard with a WC, IRS, and Labor Department audit that were all triggered by a disgruntled "employee" leaving and going to the Labor Department with some kind of complaint about Overtime. I think it ruined him and drove him out of the business because I haven't seen him in years. He used to describe his operation as using "nothing but subs" but in reality (and I told him this) he was really hiring employees on a one by one basis under the guise of being Independent Contractors just to dodge having to pay Worker Comp FICA and Unemployment Insurance on them as well as having the fact that they we "subs" allow him to avoid having to pay time and a half for overtime. He got screwed for it as well he should.

   He would tell these guys working for him that they could make more money working for him as 1099 Independent Contractors and they all went for it never really considering that while he was paying them maybe something like 20% more they we then responsible for their tax filing, liability insurance, disability or WC (which depending on the state may or may not even be required if they were solo operators) and their tools and equipment.

   I posted it a while ago but I think it bears posting the link again but anyone working as a 1099 Independent Contractor should really download and work with the PROOF/Indexed/Labor Allocated Overhead worksheet to see what they really come up with to find out if they are really making "more money" as an Independent Contractor or are they getting taken for a ride (And of course any employers should use it to check and see what their employees REALLY cost them and what they really should be charging.

   PILAO_Wksht v8.xls

   A Microsoft Excel Spreadsheet

   (Windows & Macintosh)

   3/15/2004 7:06am — Version 8 published

   I had an guy who was working as an Independent Contractor e-mail me and tell that there was something wrong with the spreadsheet because the only way he could get it to come up with the billing rate he was able to get from the builders he worked for was if he used a base wage of $9.90 per hour. I thought it was telling him something else, that he was giving away his services or essentially paying for the right to work.

   Brb as for your case specifically where employers were getting hit for not covering Sole Proprietor who didn't cover themselves with WC it all depends on the state I guess but here in NY Sole Proprietors and even Corporation Owners and Partners can exempt themselves from Workers Comp and that legal okay and the contractor they sub to is in the clear. Well sort of to a degree. Over on JLC Dick Seibert posted a link to this NY case where the WC exempt owner of a NY based roofing company who was injured on a particular job for a GC sued and recovered 6 million from the GC's insurance company for injuries he suffered which would have been otherwise covered for under WC. So a GC who uses contractors without WC may still be in compliance he many not be protected.

   To check out what the skinny in your state may be and to get some links to more information you can try WorkersCompensationInsurance.com.

   Now my own opinion is everyone including Sole Proprietors should be required to carry WC, period. You mentioned money spent on WC "would be money better used towards a disability policy" but I'm not sure exactly what you mean by that. Depending on the state and depending on the disability policy it could go either way. But by having states require that all workers be covered by WC I feel at least sets and provides a minimum standard or protection for all workers. It also helps level the playing field in that structural steel painting solo operator with a disability policy that cost 1-1/2% of wages has a huge competitive advantage over a company that has employees and has to pay %45 for WC insurance.

   What happens is you get GC's who want to hire multiple solo operators as Independent Contractors rather than hiring a company because it cheaper that way. Meanwhile those solo operators are more often than not poorly protected compared to their WC covered counterparts.

   "But the latest thing I've heard is that now some health insurance companies will not pay for injuries incurred while at work if you are self employed"

   I haven't heard that at all but it wouldn't surprise me in the slightest. The insurance company in that case is saying why should we pay for a work related injury when that really should be covered by WC. They could also just raise their Health Insurance rates to Sole proprietors who have opted out of WC to cover for their increased risk and exposure. Insurance companies are always getting beat up as being robber barons but I think I'm on their side on that issue.

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1. 
   Brbconst | Jun 05, 2004 05:58am | #11

    The funniest part of that is that when I called My business insurance agent and explained it to him he told me " you can't cover yourself, It isn't legal in any state" . Cost him my business as all of the people I work for are insisting that Sole Proprietor subs be covered with WC.

   I do mostly specialty stuff and work alone. My health insurance company hasn't said the won't pay if I get hurt at work but I'm not gonna chance it. 

   11% isn't the end of the world but it's funny how when you add it to your price the same people who told you " no WC,no work" have no idea what your talking about.

2. 
   GJR | Jun 05, 2004 12:20pm | #12

   Jerald,    I totally agree with your statement.

   "Now my own opinion is everyone including Sole Proprietors should be required to carry WC, period."

     I was the one who brought the case up involving the roofing company over at JLC,  although Dick did post the link after I mentioned it.   My accountant is very involved with contractors and had informed me of it.    This case is  proof in our state  that if you are not covered by WC you can find yourself in serious trouble regardless of that worthless piece of paper, (waiver you can get at the WC board). 

      It would behoove anyone in the trades to be covered, and any GC who is hiring should have a policy that will cover anyone on their job who has not covered themselves regardless of that waiver.  Just make it clear to subs,    "I will cover your WC, but your price will be reduced this amount if you do not produce a WC certificate."   The biggiest problem is everyone is trying to do things on the cheap  thinking they can cut out the cost of WC.

   "Don't take life too seriously, you are not getting out of it alive"

1. 
   JerraldHayes | Jun 05, 2004 09:08pm | #13

   Gary R "I was the one who brought the case up involving the roofing company over at JLC,  although Dick did post the link after I mentioned it.  "

   Yup, yup, I do recall that now. I had saved the link but couldn't find the topic I got it from on the JLC site since the forums there are so difficult to search and find information in. Do you recall what the topic was where you brought that up? Generally speaking the discussions over on JLC are curmudgeonly pedantic but at times you can still pick up some real important information there if your sort through the chaff.

   Just make it clear to subs,    "I will cover your WC, but your price will be reduced this amount if you do not produce a WC certificate." I think that is the way to go only it's important as the general or prime contractor to remember to talk about that up front. You can't unilaterally and retroactively apply that rule after the work is done. That has to be agreed to in writing ahead of time verbally or in writing otherwise it can't be considered part of the contract agreement.

   Where in New York are you Gary?

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2. 
   GJR | Jun 06, 2004 02:05am | #14

   curmudgeonly pedantic....   How so true! lol   

   That topic came up in "Business Strategies"   and the title was Workman's Comp dated 4/16/04  and it went on and on but as you said, you can find good info there, you just have to patiently sift through.

   Yes, I agree about not springing something like reducing a subs price without first discussing it with them.   I am very upfront  when it comes to money and the finer details.  Keeps everyone happy. 

     I would like to discuss this further but in a rush.  I'm a small remodeling company located in Nassau County, L.I.  and up to my ears in work.  Hope all is well with you.

                                                                       Be well,

                                                                                 Gary

     

   "Don't take life too seriously, you are not getting out of it alive"

2. 
   Schelling | Jun 04, 2004 02:05pm | #2

   You are an employee and your employer is liable for withholding your taxes. If you do not pay your taxes, he will have to do it. Multiply this by 5 and you can see what a problem this could be. I know a contractor who rolled up $120k in tax liability which put him in bankruptcy, lost his home and another business.

1. 
   mitch | Jun 04, 2004 02:37pm | #3

   at a glance, from what you've told us, it seems pretty plain that the irs would undoubtedly consider you an employee.  there's often a lot of grey area to argue one way or another but doesn't appear to be much in this particular case. 

   how you handle matters is another question-  i suppose you start by going to your 'employer' and tell him what you found out and see what he says.  worst case scenario is dropping a dime on him to the irs.  i guess it depends some on how difficult it is to find work in your area.  in other words, how badly you need him vs how badly he needs you.  good luck- these situations don't usually have a very happy ending.

   m

3. 
   davidmeiland | Jun 04, 2004 03:54pm | #4

   You are definitely an employee. Print out the IRS publication that Jerrald is linking to (2 pages) and give it to your boss. He is going to go bankrupt soon, so you might want to switch to another crew. If you reported him to the IRS he'd go bankrupt even sooner, because they'll audit his books immediately. The state will do the same because they collect the worker's comp that he's not paying (which protects you... what if you get hurt on the job?)

1. 
   SamT | Jun 04, 2004 05:26pm | #5

   You are probably covered by WC (and unemployment) anyway. You'll have to check to make sure. What usually happens if someone like you gets hurt is that WC takes care of you and goes after your boss.

   Taxes, the irs will go after you for some and him for some, or just him for all.

   Wait till you no longer work for him, then drop the dime, you may get a big check for OT later. He'll get what he deserves. The Shaft.

   Samt

   Arguing with a Breaktimer is like mud-wrestling a pig -- Sooner or later you find out the pig loves it. Andy Engel

4. 
   Brbconst | Jun 04, 2004 06:45pm | #7

   El Taco,

                  He supplies tools and sets hours, Your an employee. He could be in for a rude awakening soon. Besides your probably getting screwed. If he pays you as a Sub, you need to make at least 150% of what you would ask for as an employee ($20 hourly, is at least $30, maybe more as a sub). Time to move along.

5. 
   Chipper | Jun 04, 2004 06:51pm | #8

   Sounds like he wants all the perks of a full-time employee, minus the expenses related to a typical employer / employee relationship.