Category Archives: Employee

In My Humble Opinion: You’re an Employee

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COO at Aladay LLC
Organic Farmer, Property Preservation Specialist and Custom Glass & Wood Worker. Blogger extraordinaire...
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With the current judicial revelations in the Property Preservation Industry (PPI) I thought I would bring everyone up to date with the way the IRS determines an Employee VS and Independent Contractor

How will the scles balance?
How will the scles balance?

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I am constantly asked;

“How can I be an employee when I am a business”? Excellent question. The answer is simple. Should the IRS determine that PPI Contractors are in fact employees your business license becomes moot for the purposes of the determination. Does this mean that you’re not a legitimate business? Of course not. It only means that for the period of time you had a working relationship with company “A” you were improperly classified and paid. If your business license and insurance are sufficient to satisfy your local laws then yes, you are a business.

Here how it works:

Company “A” hires/contracts with Company “B” . Both companies reach an agreement. However, this does mean….and I have spelled this out in our video series on understanding contracts…just because a contract is signed by two or more parties does not necessarily mean that the contract is valid or enforceable. So, to the layman, one an employee determination is made the contract with Company “A” is voided or at least for the determination, rendered moot. Your business license is not rendered moot just the contract with Company “A”.

The IRS formerly used what has become known as the “Twenty Factor” test. Under pressure from Congress and from representatives of labor and business, it has recently attempted to simplify and refine the test, consolidating the twenty factors into eleven main tests, and organizing them into three main groups: behavioral control, financial control, and the type of relationship of the parties. Those factors appear below, along with comments regarding each one (source: IRS Publication 15-A, 2010 Edition, page 6; available for downloading from http://www.irs.gov/pub/irs-pdf/p15a.pdf (PDF). Another good IRS resource for understanding the independent contractor tests is at http://www.irs.gov/businesses/small/article/0,,id=99921,00.html.

 

So here are the new IRS guidelines with commentary of course.

Behavioral control

 

Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of�

  1. Instructions the business gives the worker. An employee is generally subject to the business’ instructions about when, where, and how to work. All of the following are examples of types of instructions about how to do work:
    1. When and where to do the work

There can be no doubt about this, some companies have gone as far as to require photos of the dump??

  1. What tools or equipment to use

For almost every service, Types of equipment that is acceptable and unacceptable

  1. What workers to hire or to assist with the work

This phrase “pass a back ground check” dictates to your company or yourself who you can hire

  1. Where to purchase supplies and services

Locks/winterization stickers and commode wraps/insurance

  1. What work must be performed by a specified individual

Again background ckeck

  1. What order or sequence to follow

There is a very specific order that work is to be done from the time a Property is received until the property is invoiced and removed from inventory.

 

The amount of instruction needed varies among different jobs. Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. The key consideration is whether the business has retained the right to control the details of a worker’s performance or instead has given up that right.

  1. Training the business gives the worker. An employee may be trained to perform services in a particular manner. Independent contractors ordinarily use their own methods.

Online training you’re required to take, in field training when QC or other inspectors and instructors are in your coverage area, Webinars your required to participate in.

 

So Far things appear to be leaning towards the people and companies that are “classified” as Independent Contractors may actually be employees.

Now let us examine the financial aspects of the Independent Contractor. Next we examine the Financial aspects of and Independent Contractor and in reality the financial aspects of a business in general

 

Financial control

 

Facts that show whether the business has a right to control the business aspects of the worker’s job include:

  1. The extent to which the worker has unreimbursed business expenses. Independent contractors are more likely to have unreimbursed expenses than are employees. Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. However, employees may also incur unreimbursed expenses in connection with the services they perform for their business.

Can a trip fee be classified as a reimbursed expense? It is to help assist with your costs…fuel…for a trip to a property.

  1. The extent of the worker’s investment. An employee usually has no investment in the work other than his or her own time. An independent contractor often has a significant investment in the facilities he or she uses in performing services for someone else. However, a significant investment is not necessary for independent contractor status.

No one can disagree, a Boots on the Ground Contractors in the PPI has a significant financial investment

  1. The extent to which the worker makes services available to the relevant market. An independent contractor is generally free to seek out business opportunities. Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market.

Because of the methods used to recruit “new” talent in the PPI the people put in play are not business oriented and do not understand the value of “diversifying” adding other clients/customers and work exclusively for one company until they have been burned out or have been placed unfeasible financial position

  1. How the business pays the worker. An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. An independent contractor is usually paid by a flat fee for the job. However, it is common in some professions, such as law, to pay independent contractors hourly.

This is pretty self explanatory however, Independent Contractors also bill based on their business model and COGS, or what is known as Cost of Goods Sold.

  1. The extent to which the worker can realize a profit or loss. Since an employer usually provides employees a workplace, tools, materials, equipment, and supplies needed for the work, and generally pays the costs of doing business, employees do not have an opportunity to make a profit or loss. An independent contractor can make a profit or loss.

Depending on who you talk too. Let’s be real for one minute. There has to be SOME profitable companies in the PPI or no work would being completed. However, the vast majority of companies claim they operate at a break even or a deficit status. Again, I cannot emphasize enough learn how to perform a Break Even Analysis on your products and services.

 

Well that section was not quite as brutal for the National Asset Management Order Mills…

Now to examine the Relationship between you and Company “A”

Type of relationship

 

Facts that show the parties’ type of relationship include:

  1. Written contracts describing the relationship the parties intended to create. This is probably the least important of the criteria, since what really matters is the nature of the underlying work relationship, not what the parties choose to call it. However, in close cases, the written contract can make a difference.

This is extremely significant…I stated this above, just because a contract has been sign does not necessarily mean it is enforceable.

  1. Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. The power to grant benefits carries with it the power to take them away, which is a power generally exercised by employers over employees. A true independent contractor will finance his or her own benefits out of the overall profits of the enterprise.

Well we all know about this, most contractors are not generating enough revenue to provide insurance for themselves and their families, not even with “Obamacare

10. The permanency of the relationship. If the company engages a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship.

Consider the aspect being threatened with “deactivation” when you will not agree to performing services at a fee that is unacceptable, or even being threatened with same said for having the nerve to make a stink about your accounts receivables, talking to the press

11. The extent to which services performed by the worker are a key aspect of the regular business of the company. If a worker provides services that are a key aspect of the company’s regular business activity, it is more likely that the company will have the right to direct and control his or her activities. For example, if a law firm hires an attorney, it is likely that it will present the attorney’s work as its own and would have the right to control or direct that work. This would indicate an employer-employee relationship.

Contractors routinely supply EVERYTHING another company assumes credit for. ‘Nough said.

So there is a closer look at this issue. I’m not going to make bold claims here you can examine the information yourself. However, In My Humble Opinion, Boots on the Ground Contractors in the PPI have never been Independent Contractors…

That’s My Humble Opinion and I’m sticking to it!!!!!!

 

Until Next Time

Happy Gardening

 

Opinions expressed are not necessarily those of Aladay LLC ownership.

Written by: Aaron Aveiro