Misclassification of Independent Contractors = A Rough Road for Employers

FedEx deliveries are exciting, right? From the moment you order or send a package, track its progress and see the final “delivered” status, it is the ultimate adrenaline rush.

OK, perhaps I exaggerate. To be realistic, deliveries these days are pretty streamlined, simple and likely kind of boring. But last month package deliveries got a little more complicated for FedEx in Oregon and California.

How? Most of us would assume a person wearing a FedEx uniform, groomed to FedEx’s standards driving a FedEx truck and delivering packages on FedEx’s schedule would have to be a FedEx employee. But in Oregon and California, the drivers were actually classified by FedEx as independent contractors. Common sense says that wouldn’t be right, and the U.S. Ninth Circuit Court of Appeals agrees. Recently the court rendered a decision holding that the drivers in those states were actually employees.

This is a big deal. In fact, it has been called “an earthquake in the independent misclassification field.”

I can’t tell you what the exact financial effect will be on FedEx in California and Oregon, but can tell you it likely to be dramatic for FedEx and a lot of other companies.

Identifying an individual as an employee or independent contractor is tricky. A solid independent contractor agreement is great to have in place, but it won’t help ward off scrutiny from the IRS, the Department of Labor, and other local, state and federal authorities. There is a lot to consider before entering into a business relationship with someone as an independent contractor.

State laws may differ on who can be classified as an independent contractor, but the IRS has streamlined guidelines to help employers with classification. What should you consider before entering into an independent contractor relationship?

Overall, it is based on the degree of control a company has over an individual and can be broken down into a few areas.

• Does the company tell the individual exactly what to do in delivering the final product or service?
• Does the company determine or provide the equipment that is used how, what to wear on a job site and hours of work?
• Is all work performed on an actual company-provided worksite?
• Does the company provide training and education to perform the work?
• Does the company say where to buy materials needed to perform the work?

If the answer is yes to any of these questions, the person is most likely to fall in the employee category.

It’s also important to consider the degree of control that the company has over other jobs or assignments a person can secure. If an individual is restricted or prohibited from taking additional jobs or assignments, or advertising services outside the company, this also would likely lead to employment status.

In a contracting relationship, a company does not have the authority to prohibit or restrict the contractual agreements a person can enter into with others. In any audit, the IRS would also consider how long the relation is in place or whether there was any expectation of the relationship being permanent.

Last of all, an independent contractor is fully responsible for keeping track of business expenses. The company is not involved and bears no responsibility for the individual’s expenses.
Determining the correct employment classification may not be as easy as tracking your FedEx package, but there are a number of resources to help.  For starters, the IRS has a 20-question that is extremely helpful and can be found here.
Monica Bitrick is CEO of Bitrick Consulting Group, an Idaho Falls human resources company.

Smith Honda, Chevrolet open on Sunnyside Road

Stafford Smith inside the new Smith Honda dealership on Pioneer Drive, off Sunnyside Road.

With a lot of kinks still to be ironed out, Smith Chevrolet and Smith Honda are looking at an Oct. 15 soft opening for their new dealerships off Sunnyside Road.

The Honda operation moved from Holmes Avenue to its new facility in late September while the Chevrolet dealership began selling cars and trucks there on Tuesday. The Chevrolet service department is due to open today.

For Stafford Smith and his staff, this represents the culmination of more than a year's worth of work. A few administrative people are still working at the buildings on Holmes, but for all intents and purposes both dealerships are now on 17 acres south of Sunnyside, each in buildings just shy of 30,000 square feet. Smith said he plans to have a grand opening in spring 2015, but is happy to show the place to guests now.

Smith Chevrolet started in 1917, when David Smith set up his dealership with two cars in the lobby of the Hotel Idaho on C Street (now Constitution Way). The dealership was downtown until 1963, when they moved to North Holmes Avenue, which was farmland at the time. They added Honda in 1970, starting with the tiny 600 series cars. The new dealership has been certified with Honda's Environmental Leadership Platinum Award, one of a handful in the United States.

Right now, access to the dealership on Pioneer Drive is closer to the Interstate 15 Exit 116 than Smith or the Idaho Department of Transportation are comfortable with. The address for both dealerships is listed as 3477 S. Pioneer Road, but as it stands now Pioneer Road empties onto Sunnyside just east of Teton Volkswagen and goes nowhere to the south.

Excavation of Bank of Commerce parking lot begins

Excavation work Wednesday at Yellowstone and A Street

Four months after an errant crane broke through the pavement revealing an underground parking structure, repair work has begun at the Bank of Commerce's parking lot at A Street and Yellowstone Avenue.

The incident occurred May 6 when the driver of a 40-ton crane tried to make a wide turn coming out of the alley onto the thoroughfare. Although the existence of the parking structure came as a surprise to many, it's no secret to anyone who has lived here a long time. The bank stands where Dad Clay's Garage used to be. Clay built his garage in 1910 and briefly sold Buicks and Fords before other businessmen acquired exclusive dealership rights.

Bank of Commerce CEO Tom Romrell said the door to the underground parking structure is on the bank's south side. He said that while some city officials claimed after the accident that they might not have been aware of it, it had been inspected as recently as five years ago.

In case you're interested, this week is the 50th anniversary of the Bank of Commerce's downtown branch, which opened in early October 1964. There was an open house that featured a display of federal reserve notes from $1 to $10,000. Who was on the $10,000 bill, you ask? Salmon P. Chase, Abraham Lincoln's treasury secretary.

Large denomination bills were last printed in 1946. Since then, the largest bill you can get at the bank is $100, featuring the picture of my favorite American, Benjamin Franklin.

Since you're dying to know, here's who was on the larger bills, or Gold Certificates, as they were officially called by the Federal Reserve:

$500: William McKinley
$1,000: Grover Cleveland
$5,000: James Madison
$10,000: Salmon P. Chase

The race is on to get foundations poured

The race is on to get foundations poured before the ground freezes, but Mother Nature has not been helping with the 3.5 inches she dumped on eastern Idaho last weekend and another copious storm Tuesday night.

Nevertheless, in between downpours the work is proceeding apace. Freddy's Frozen Custard, on Woodruff Avenue, was having its foundation poured Wednesday while the footings for the Noodles & Co. on Hitt Road, were also being prepared. Preparation for the Home2 Suites at Snake River Landing were also coming along.

A few of you have asked about the backhoes and dirt in between WinCo Foods and Family Dollar on Woodruff. According to Brian Tomsett, our answer man at the Idaho Falls Building Department, it is the result of excavation work in the WinCo parking lot. Fairly extensive soil settling problems forced WinCo to excavate the dirt -- hence the big pile -- and dump in several truckloads of 3/4-inch gravel, 16 inches deep.

stay tuned as we bring you up to date on the west side Walgreen's, Smith Honda and Chevrolet and the new Melaleuca world headquarters, all of which are entering the homestretch.

Idaho Falls Regional Airport posts survey

Do you want to win two airline tickets? The Idaho Falls Regional Airport is seeking input from passengers. Please share your opinions about the airport, its customer service and the amenities it provides. Participants who complete the short online survey (link below) will be entered in a drawing to win two airline tickets. The survey is open until Friday, Oct. 10.

http://survey.constantcontact.com/survey/a07e9u9scxgi02xodwp/start

Vino Rosso starts Art-Wine-Music event

An example of one of Fire Art Design's photos

Now that Alive After 5 is over, if you're looking for a place downtown to socialize and have something wet Vino Rosso, 439 A Street, has started First Wednesday: Art-Wine-Music.

It runs from 5:30 to 8 p.m. This first one will feature photos by Fire Art Design's Tony Deschamps and music by Jessica Marie Nichols.

For a look at some of Fire Art Design photos ("Modern Photography for Commercial Design") visit this link: www.fireartdesign.com.

Independent Contractor Pay: Hassle free or Headache?

The NFL has a lot of problems these days. Over the past few weeks America has watched stories about NFL players that are more like episodes of COPS than Sports Center features.

But have you heard about the cheerleaders? Here's a whole different headache for the league.

Over the past year, 13 cheerleaders in five states have filed lawsuits against their respective teams claiming the teams violated minimum wage laws. How is possible that in a billion-dollar industry the sideline entertainers don't make even minimum wage?

The NFL has always given responsibility for cheerleader management to the teams. The teams either contract individually with their selected squad members as independent contractors or contract with an outsourced sponsor or management company. In turn, the women are typically paid for each game and promotional appearance during the season. Pay range for the season -- yes the entire season -- can be as little as of $100.

Keep in mind the ladies are required to attend practice weekly, come to all scheduled games during the season and post season, and may have promotional responsibilities as well. That means that starting contractor pay for an average season could be as low as $20 per month.

The contractor pay issue has become so problematic that the cheerleaders for the Buffalo Bills, the Buffalo Jills, will be absent for the first season ever since the 1960s. In Oakland, earlier this month, one cheerleader was awarded a settlement of more than $1 million for the Raiders' cheerleader independent contractor pay practices. After that, the Raiders implemented a pay program for cheerleaders, paying them $9 per hour.

With workplaces that operate globally now, hiring contractors has never been a more “in-
vogue” business practice than it is now. For a fraction of the cost of hiring and retaining an actual employee, contractors can be hired locally, nationally, or even globally to fulfill tasks or projects.  Hiring contractors not only can be easy and beneficial for both parties, but also breaks the barriers of long-term commitment for either party while operating in a flexible and cost-efficient manner. For a lot of businesses, independent contractors just make more sense – or do they?

The good news in all of this is, I would say ninety-nine percent of the people reading this column do not have cheerleader contract problems. The bad news is the NFL isn’t the only place where contractors are incorrectly classified when it comes to pay in a workplace – and doing so can easily become a bigger headache than putting the contractors under payroll.

In fact, a series of state and federal employment laws come into play when determining if an individual should be paid as a contractor or employee. The U.S. Department of Labor, state departments of labor, and the IRS have been increasing audits of employers across the country each. These audits hit big and small companies alike and require a detailed review of every person you have paid over a three-year period. Even if a contractor no longer works for a company, if he or she is deemed to have been classified as an employee the company is required to pay back all the “unpaid” employment taxes plus penalties.

It seems like it would be worthwhile to classify appropriately to make sure you don’t end up like the
Buffalo Bills without the Jills – and a lawsuit to follow, right? Check-in with us next week as we determine if you should pay someone as an independent contractor or employee.
Monica Bitrick is the CEO of Bitrick Consulting Group, a human resources agency in Idaho Falls.