Unemployment Insurance Advisory Council Meeting Minutes
Tuesday, May 20, 2008 – 9:30 a.m.
Dane County Job Center
1819 Aberg Avenue
Management: James Buchen, Dan Petersen, Ed Lump, Susan Haine, Earl Gustafson
Labor: Patty Yunk, Dennis Penkalski
Chair: Daniel LaRocque
Department staff present: Hal Bergan, James Bond, Tracey Schwalbe, Dick Tillema, Jorge Fuentes, Mike Mathis, Peter Zeeh, Lutfi Shahrani, Ben Peirce, Carla Breber, Andrea Reid, Brian Bradley, Ed Pyykonen, Christopher O’Brien, John Zwickey, Robin Gallagher.
Others present: James Pflasterer (Labor and Industry Review Commission), Bob Andersen (Legal Action of Wisconsin), Michael Metz (WI Independent Business), John Metcalf (Wisconsin Manufacturers and Commerce).
Mr. LaRocque calls the meeting to order at 9:50 a.m.
1. Brief Remarks – Hal Bergan
Mr. Bergan updates the Council that Congress is looking at the possibility of extended benefits. Extended benefit proposals have passed both houses and they are in a reconciliation process. This is tied up in the supplemental appropriations bill primarily to fund the war in Iraq. We are not certain we will have extended benefits. There would be funding for administration which would be beneficial because extended benefits puts pressure on our benefits staff.
Up until recently this year, we had initial claims increases of 2-2.5% over last year. However, for the last four weeks, we had double-digit increases. Last week the increase was a 28% increase over the same week last year. We need to be careful about any single week-to-week comparison, and even four weeks in row does not necessarily show a trend, but it is something we are watching. The national economic news has gotten better, but we are seeing a spike in claims.
Question (Buchen): Was there an overall decline in the unemployment rate in April, the lowest since 2000?
Mr. Bergan indicates that this is correct.
2. Minutes of Meeting April 22, 2008
Motion (Haine), seconded (Penkalski), to approve the Minutes of the April 22, 2008, meeting. Minutes are approved unanimously.
3. UI Financial Statements
Brian Bradley, Section Chief of Accounting and Finance, presents the financial statements. The March cash analysis shows the status of the reserve fund at $310 million compared to last year’s balance at the end of March of $485 million. The update of the cash balance as of April 30 is $560 million compared to $734 million as of last April. First quarter tax receipts were $329 million, compared to $336 million. There were $393 million in benefits charged to the reserve year, about the same as last year. As of this morning, our balance is $538 million. This means that unless something drastic happens in the next few months, we will be using Schedule B next year, which is the same as the last four years. For first quarter tax liability deferrals, of about 9,600 employers who were eligible, 335 employers took advantage of this in 2008 with about $6 million in tax liability. The law change lowering the threshold to $1,000 goes into effect in 2009.
Question (Buchen): Why do you think the tax collections are lower this year?
Mr. Bradley indicates the department is in the process of analyzing the experience rates for 2008 to see if we can identify any trends. The taxable payroll is about the same as last year.
4. Proposed DWD 149 and DWD 140, Disclosure of UI Records
Ms. Schwalbe indicates that the department sent a letter to the legislative committees requesting two germane modifications to DWD 149. She was contacted by Jim Pflasterer of the Labor and Industry Review Commission (LIRC) regarding changes they would like to see in the proposed rule. The two proposed modifications are not substantively different than what was intended with the rule. First, the department anticipated that department records still would be released to LIRC under the provision allowing release of records to public officials. LIRC preferred to have a specific reference showing that records would be provided to LIRC. The department agreed that this was appropriate and intended. We added the sentence that the records will be released to LIRC. The second concern was that we were creating a definition of “public domain information.” Historically, LIRC decisions have been considered in the public domain. LIRC was concerned that by not referencing LIRC decisions they might be construed as no longer in the public domain and that was not our intent. We added a specific provision that denotes that LIRC decisions are public domain records. We submitted the germane modifications to the legislature so as not to delay the rule approval process. The federal law requires that states be in conformity with the federal rule by October 2008. We anticipate that this rule will be effective August 1, 2008.
Motion (Buchen), seconded (Penkalski), to approve the germane modifications. Motion passes unanimously.
5. Department presentation regarding definition of “employee”
Mike Mathis, Jorge Fuentes, and Peter Zeeh, tax enforcement attorneys, provide a presentation in conjunction with the written outline of the definition of employee provided to the Council. Mr. Mathis has been employed with the department for 27½ years. Mr. Fuentes has been with the department for 20 years. Mr. Zeeh has been with the department 32½ years.
Mr. Mathis thanks the Council for the opportunity to have input on the discussion of the issue of employee definition. The tax enforcement attorneys handle unemployment tax appeals regarding employer tax liability, and handle the litigation as far as the cases go, up to the United States Supreme Court. Mr. Mathis has represented the department in approximately 3,000 tax appeals. The enforcement attorneys handle approximately 300-350 cases total per year. Approximately 90% of those cases involve the definition of employee. Mr. Mathis thinks there is no more important definition in chapter 108. It defines which workers an employer must pay taxes on, and defines the universe of workers potentially eligible to receive unemployment benefits.
The definition for unemployment tax purposes is in §108.02(12)(a). This is a broad definition, with specific exceptions. The policy of the program has been to have a broad definition to extend the coverage as broadly as possible. The main exception is in §108.02(12)(bm), the 7 out of 10 test for who is an employee.
Other programs have other definitions for employee. There has always been some concern for consistency in the definition of employee. We hear this from employers all the time that they are frustrated that our definition is different from other definitions. That is a legitimate concern, but we have to be very careful that uniformity or consistency does not become the number one objective. Different programs have different objectives; other programs may have a reason for using a more restrictive definition of employee.
The Department of Revenue (DOR) does not have a statutory definition of employee. There is little case law on their interpretation of the term. It seems they use a mixture of the federal common law test and factors useful for unemployment and workers compensation.
Workers compensation has a nine-point test for independent contractor that is essentially the same as the ten criteria in the unemployment law for the exception to the definition of employee. The main difference is that two of the unemployment criteria are collapsed into one for workers compensation, specifically, the federal employer identification number and filing of business or self-employment income tax return criteria. The workers compensation definition is tougher than the unemployment test because nine out of nine criteria must be met.
Comment (Buchen): Both of these tests seem to have provisions that seem redundant. For example, realizing a profit or loss sounds like the same thing as having recurring business liabilities or obligations and/or the one where the success or failure of the independent contractors business depends on the relationship of business receipts to expenditures.
Mr. Mathis does not disagree. Some of the criteria have explanations that literally say “redundant.” Because of the rules of statutory construction, which presume that each statutory provision has its own meaning, LIRC has tried to find some differences between those criteria.
There is a definition under federal law for FUTA and other federal tax purposes. The IRS uses the common law rules. Unlike the statutory definition for unemployment and workers compensation, there is no federal statute defining employee that lists factors to consider. The various factors in the federal common law test were developed in cases over a number of years and are found in various cases.
Question (Haine): What is the purpose of the federal definition of employee? Is this just for FUTA, and not, for example, for ERISA?
Mr. Mathis responds that this is not specifically just for unemployment; it is the federal employee definition for other federal tax purposes, such as FICA. He is not sure about ERISA.
The 20 factors of the federal common law test are listed in IRS Revenue Ruling 87-41, which summarizes the various revenue rulings with the 20 factors. Mr. Mathis points out some of the factors, listed in Attachment E to the outline of the Definition of Employee. The first factor is “instructions” which goes to whether the employee is told when and where to work. The most important aspect is the extent the employee is told how to do the work. The federal common law test is generally referred to as a direction and control test. It is less concerned than the unemployment test with whether it is a separate business, and is more concerned with direction and control over the worker. Factor number 15, significant investment, is generally associated with separate or independently established business, rather than direction and control. Under the federal common law test, there are some elements of independently established business. Generally speaking, however, it is a direction and control test. There is no number of factors in the federal test that must be met, e.g., there are no 15 out of 20 or 20 out of 20 factors required to meet the test. It is decided on a case-by-case basis, and it is for the decision maker to determine which criteria are important in the context of the specific case being heard and how those factors come out based on the evidence. It is suggested that the unemployment definition is broader than the federal common law test. There are numerous cases where employers bring their IRS letters that the workers are not employees. We have to tell them that our definition is different.
Question (Buchen): Is that an over generalization? Could any case go one way or another depending on what they want to apply or not? In some instances a decision maker could be more restrictive than the unemployment definition, correct? Is it possible for someone to be an employee under the common law test, but not an employee under the unemployment test?
Mr. Mathis agrees it is possible, but not likely. More often the decision goes the other way.
Question (Buchen): Are the factors published so that an employer can find them and try to determine if the worker is an employee or not?
Mr. LaRocque indicates that the factors are published in the Revenue Ruling 87-41. Mr. Mathis indicates that they could look at the factors listed in this revenue ruling, but to understand more what the factors mean, they would need to look at the individual revenue rulings that have been summarized in Revenue Ruling 87-41. The federal common law test is looser than the unemployment or workers compensation test because the decision maker can decide which factors are relevant to the case. However, over time patterns and “rigidity” in the law develops from the citation to established caselaw. Mr. LaRocque states it is a significant difference between the current test and the federal common law test and the prior unemployment test, that the current test requires satisfying 7 of 10 factors, rather than allowing the test to flex in each case.
Mr. Mathis discusses the prior history of the definition of employee for unemployment in Wisconsin. Prior to 1996, Wisconsin used a two-part test to find if there was an exception to the broad definition of employee: (1) absence of direction and control and (2) independently established business. Both parts had to be satisfied. From the second part of the two-part test, the courts developed five factors to apply. The court looked at “integration” of the services and whether they were integrated into the business and the employer necessarily exercised some degree of direction and control. This came down to how integral the services were to the business.
Question (Haine): In a consultant scenario with a CFO for hire who was displayed on a company’s website, who was providing the services to other entities, who worked in the business’s offices and used their equipment and was certainly under their direction and control, would this be an exception to the employee definition? Could she be an employee with one client and not with another?
Mr. Mathis indicates that the test whether someone is an employee or not is black and white. The enforcement attorneys work in the gray area.
Question (Buchen): It seems there is an infinite variety of potential situations that suggest a certain amount of discretion on the part of someone in making the decision may be more sensible than trying to find language that applies to every situation. Do we have a means for people seeking a determination or advisory opinion up front as to the status of the worker?
Mr. Mathis indicates that the test is a one-size-fits all definition. When employers call with questions, we will answer them as best we can. We do not have authority to issue opinions which are binding as to the status of the worker. History has shown that facts can change from the time of advising or rendering an opinion and what the employer actually does.
Comment (Lump): Could there be a way that an employer could put a request in writing as to the circumstances that would lead us to determine that that will be an exception to the employee definition? Could the department limit the approval to only if the employer does what it states in its written request?
Mr. Mathis indicates that the department does not do this presently and would likely be reluctant to do so because what employers tell the department may be different than the reality.
Comment (Haine): With all of the new models for working, it would be helpful to have a way for employers to get advance rulings. If they do not do those things, you may look at that issue later.
Comment (Lump): In some cases, the worker sells the independent contractor status to the employer. The employer thinks it sounds good, but I think there may be a way that they could have some reliance based on a certain set of circumstances. Putting it in writing would be more binding than just talking to the department.
Question (Gustafson): Is the problem that because the law itself is open to interpretation, you can put together a contract or agreement that would mirror the uncertainty of the law? You would be dealing not only with whether they did what they said they would do, but also the interpretation of the facts to the law.
Mr. Mathis indicates that this is true. An advisory opinion would not guarantee that an appeal tribunal would reach that decision. It would be a change in policy. Mr. Bergan indicates that it is not so much the need for an advisory opinion as to clarify things because people find themselves in trouble on this issue through no fault of their own more than any other. There are a lot of people who stumble into these things. Anything we can do rather than just referring people to the statute would be helpful to them. We do it informally all the time.
Comment (Lump): We have situations where people work for multiple employers in what they think is an independent contractor basis in all kinds of job classifications. I think it is something we should look at as we take a look at a possible new model for the definition. We should try to give the employer something to hang its hat on.
Mr. LaRocque indicates that this is done informally now, but it is not a binding decision. Mr. Mathis indicates that when an employer calls, he gives his best opinion based on his understanding of the law and based on the facts as presented. The employer cannot rely on the opinion in an appeal tribunal hearing.
Question (Buchen): Where do these disputes arise? Independent contractors are outside the system and if both parties think they are in an independent contractor situation, the worker will not claim benefits.
Mr. Mathis indicates that these arise primarily where someone makes a claim for benefits and lists the employer as someone for whom they performed services. This may trigger an audit. We also independently audit employers and discover these issues. Sometimes competitors will tell the department that an employer has employees that are not being reported for unemployment purposes and can underbid them. The department also has a tip line.
Question (Buchen): In a random audit, what is an auditor looking for? How do you randomly audit independent contractors who are not part of the UI system?
Mr. Mathis indicates that they look at the business’s books for people to whom the employer has written checks or made payments, or issued 1099s. The auditors send questionnaires to the workers and based on the information they get they make a determination. That is when the employer appeals. Ed Pyykonen, Section Chief for Field Audits, indicates that auditors generally find someone by looking for patterns in payments made. They will send questionnaires to the contractors and call them up and ask questions. There are other issues that arise, such as whether they have liability coverage for the workers. Mr. Mathis indicates that in representing the department, the enforcement attorneys have the authority to set aside a determination if they think the department’s decision was incorrect.
Comment (Haine): I have been through 6 or 7 random audits with clients in the past few years. How many audits does the department do?
Mr. Pyykonen indicates that the department tries to audit 2% of covered employers per year.
Question (Peterson): I think of these as being individual workers who decide they want to be independent contractors. It is not the case where there are 5 men doing the same thing; it is more of an individual wanting to do something different. Is that the general case?
Mr. Mathis indicates that this can vary greatly. He has had cases with one or two employees up to several hundred employees misclassified.
Mr. Mathis continues that the other factors considered for the “independently established” part of the two-part test used prior to 1996 include advertising and holding out, entrepreneurial risk, economic dependence, and proprietary interest. For economic dependence, it is sometimes hard for employers to show a transfer of services if the transfer is of particular skills. The court of appeals held that all five factors need not be satisfied, only those that are applicable.
The Wisconsin law changed in 1996 when we went to the 10 criteria test. The law initially provided that one of the first two of the factors had to be met and an additional six of the remaining eight. This was in effect until December 31, 1999. Since 2000, we have the 7 out of 10 test. The test contains elements of what we considered direction and control and independent business. It is not clear that the changes in the law have resulted in different outcomes.
In addition to the exception to the definition of employee for independent contractors, the statute provides for other exceptions for a contractor who employs an individual, a sole proprietor, and a partner. The courts have held that under 108.02(12)(d), if an employing unit hires a contractor who is an individual and the contractor hires workers to help do the job, the contractor cannot be an employer and an employee at the same time, so if the contractor is a subject employer they are not an employee of the employing unit. Sole proprietors and partnerships are separate entities under 108.02(12)(dm) and (dn). The two-part test still applies for services for governments or nonprofits, loggers and truckers. This is required for governments and nonprofits because of federal conformity issues. For loggers and truckers, there are also administrative code provisions that define how to interpret the elements of the two-part test for those industries, DWD 105 and 107. Mr. Mathis has never had a case involving the status of a government employee, and very few cases of the status of employees of nonprofits. However, there have been some high profile cases lately with nonprofit organizations involving soccer referees and truckers. Once in a while there are cases involving truckers where DWD 105 applies. He does not recall the last time he had a logging case.
The current test is the 7 of 10 factors. Factor 1 is that the individual holds or has applied for a federal employer identification number. A social security number is not acceptable. We have heard complaints over the years from sole proprietors that they followed the advice of their attorney or accountant that they did not need an FEIN and we tell them they need one for this test. It is relevant, but it is not necessarily important enough to be one of the 10 required factors. On the other hand, it can be manipulated by employers who require workers to apply for one to meet this factor whether they are a separate business or not.
Factor 2 is that the individual has filed a business or self-employment income tax return. Businesses can control this somewhat by issuing a 1099 and then the individual has to file a self-employment income tax return in order to expense against the income. It is the tail wagging the dog. There is other relevant information on a Schedule C about a business, but it is questionable whether the filing of the form is relevant enough to be a separate factor.
Factor 3 is that the individual maintains a separate business with his or her own office, equipment, materials, and other facilities. LIRC has held that the list of items is not exclusive. This factor makes the ultimate conclusion one of the criteria. The test should be driving toward whether someone does or does not operate a separate business. For example, if you determine under this factor that someone operates a separate business, you still may find an individual does not meet 6 of the other criteria. As a matter of law, you may have an employee who has a separate business. This is not logical.
Question (Lump): Do you have to meet all of the requirements of that factor? Does everyone need to have an office, for example?
Mr. Mathis indicates that there are some cases that say you have to meet all of these. This can be difficult with some types of workers, but it is only one of the factors in the 10 point test.
Comment (Haine): I think we will start to see more of this as the population changes, retires and sets up as a consultant with a nonprofit.
Mr. Mathis indicates that the types of work and technology changes also will affect this.
Comment (Buchen): There are a lot of businesses for which it makes no sense to have an office or other equipment. I think requiring all three may be the problem.
Factor 4 is whether the individual operates under contracts to perform specific services for specific amounts of money and under which the individual controls the means and methods of performing services. This factor actually combines two different things. The second part refers to the means and methods of performing services which is like direction and control. This does not say exactly how many elements will show means and methods of performing services. The first part talks about performing pursuant to contracts. LIRC has held that the services of the worker must have been performed pursuant to multiple contracts. The condition is deemed satisfied if the worker had more than one contract with the employing unit at issue, or if there was one contract with the employing unit at issue and other contracts with other employers. However, if the multiple contracts with the employing unit at issue were identical as to terms, including the amount of compensation, LIRC has held that the contracts were not the result of arms-length bargaining and that the condition was therefore not satisfied.
Factor 5 is that the individual incurs the main expenses related to the services that he or she performs under contract. This raises issues of what the main expenses are. In a siding case, for instance, the question was whether they have the expense of the siding, which the people who put up the siding usually do not. There is some controversy over what are the main expenses. This can be a problem, too, if there are no expenses. LIRC has held that even if performance of the services at issue would simply not generate expenses, the criteria still must be applied as opposed to being disregarded in particular cases.
Question (Buchen): Wouldn’t everyone incur some expenses? Computer, cell phone?
Mr. Mathis responds that some services, such as translators, may have expenses or investments of next to nothing.
Question (Penkalski): Would there be reimbursement for travel expenses, for example, for the people doing siding to go to big box-type stores?
Mr. Mathis indicates that if travel expenses are the main expenses, then siding applicators may be able to meet the factor.
Factor 6 is that the individual is responsible for the satisfactory completion of the services that he or she contracts to perform and is liable for a failure to satisfactorily complete the services. Some cases held that this is satisfied if there is clearly an agreement that the individual will redo any unsatisfactory work for no additional compensation. If there is that sort of understanding, that factor may be satisfied. Other cases say that damages must be allowed against the individual.
Question (Buchen): For someone who is providing management consultant services, how do you decide if they are successful or not? Isn’t that subjective? If you hire a contract lobbyist to pass a bill, for instance, it is against the law to pay them based on the outcome of the service.
Mr. Mathis indicates that this points out one of the problems with the liability issue. Also, it is not clear if this means responsible for or liable in a legal sense.
Mr. LaRocque invites James Pflasterer, General Council for LIRC, to comment as necessary on the LIRC decisions. In particular, to comment on how the commission looks at a situation where liability is not contemplated by the parties.
Question (Penkalski): In many cases, warranties are sold on products sold in stores, such as a refrigerator. If there is a warranty on those products and the store is responsible for the liability, how is that considered for this factor?
Mr. Mathis indicates that if the store is liable, it may not meet the factor for the individual to be liable unless they are the ones responsible for doing the rework under the warranty. It may depend on if the warranty is for defects in the product or installation done by the individual.
Factor 7 is that the individual receives compensation for services performed under a contract on a commission or per-job basis or competitive bid basis and not on any other basis. This is straightforward. Hourly pay does not satisfy this factor.
Question (Haine): If I am a consultant to manage a business and I charge $200 per hour, does this meet this factor?
Mr. Mathis indicates that it would not satisfy this factor.
Comment (Buchen): No lawyer would satisfy this factor.
Comment (Haine): If I am a consultant to manage a business and I say I will charge a fixed fee for a scope of work no matter how many hours involved, will that satisfy the factor? This involves a potential for a loss.
Mr. Mathis indicates that this is more close to the requirements of the factor. Some questions come up with this factor for piece work. It is not considered per-job by higher review authorities.
Factor 8 is that the individual may realize a profit or suffer a loss under contracts to perform such services. LIRC has interpreted this to mean the individual could suffer a profit and a loss. The individual has to be able to show how they can suffer a loss as well as earn a profit. It cannot be a theoretical loss, but a realistic possibility over time to suffer a net out-of-pocket loss.
Question (Buchen): A freelance writer would not meet this factor then?
Mr. Mathis indicates that there are many people who, based on what they do and how they are paid, do not have much of a chance of ever having a net out-of-pocket loss. LIRC has specifically held that lost time is not something to consider as a loss. They may have other expenses involved in the business that are not tied to a written article that can reflect a loss. These can be very fact-specific where one individual submitting writing may be considered an employee and another for the same employer is not.
Factor 9 is that the individual has recurring business liabilities or obligations. This is distinguished from factor 5 that deals with business expenses. Expenses are seen in connection with particular services for that particular job; liabilities are looked at as expenses of running the business. For example, for an attorney, this may include bar dues, continuing legal education, insurance, etc.
LIRC has been consistent in holding that if the individual has any recurring business liability, the factor is satisfied.
Factor 10 is that the success or failure of the individual’s business depends on the relationship of business receipts to expenditures. No one knows what this factor means. It is hard to imagine any business the success of which does not depend on the relationship of business receipts to expenditures. LIRC has held that this did not apply in a case where an individual had retired and was running a cab company up north as a hobby. It has also been interpreted that if the individual is performing work for only one employer it may not be met.
The perfect definition of employee or independent contractor will not happen. Everyone has a different understanding of what is an employee and will not be able to agree 100%. There are also a variety of circumstances where these issues come up. The test can be better than it is, even if it is not perfect. We can improve what we have, go back to the direction/control and independent business test, or develop something else.
The outline lists several other types of work that are excluded employment. In looking at this issue, the Council may wish to look at these exclusions as well. The outline also separates out the corporate officer exclusion. Though employers can take this exclusion, they may be better off financially not to do so and to take the credit against the federal tax. The department has a form for businesses to use to calculate if the exclusion is appropriate for them.
Mr. Fuentes presents the outline regarding the appeal process for determining employee status. The initial determination is the act that triggers the appeals. The audit leads to the determination. The TEAMS group also issues initial determinations. They get requests when employers are first starting out and they ask if the business has independent contractors. Benefits may contact them that a person has claimed benefits and that the employer is not paying taxes on the person. Sometimes there are random communications with employers where the issue comes up and TEAMS may request an audit. The employer has 21 days to appeal the determination. There are several human factors in play in this process. The TEAMS contact is made in person, the auditor talks with the employer, and finally the enforcement attorneys review the case and try to resolve cases. The enforcement attorneys make two or three efforts to contact employers before hearings and try to resolve the amounts and narrow the issues. Employers may provide more information to the enforcement attorneys than the auditor had that resolves the issues, such as Schedule Cs of employees. Employers usually have two motivations: first, to minimize their liability, and second, to avoid any trouble with the IRS or DOR. We are making decisions based on the facts, and enter into agreements to resolve cases. We do not cut deals on the amount, but look at each individual. We can look at the wages and see if they might have been for expenses and reduce the taxable wages by that amount. We can waive interest if the case is pending for more than one year, though we do not have a long backlog at this time. The stipulations and findings that an individual is an employee cannot be used under any other law. The enforcement attorneys have the authority to set aside determinations if appropriate.
At the hearing, the hearing is de novo or a new hearing. What the auditor said does not matter, the facts as presented are what will help the judge decide the case. The administrative law judge may affirm the determination, reverse it, or partially affirm and partially reverse it. The parties have the right to appeal to LIRC, and then to the courts. In 2007, 292 appeal decisions were issued and only 36 of those were appealed to LIRC. Whether this statute definition of employee works or not, it has reduced the number of appeals. In 1989 to 1995, 80 cases were appealed annually; since 1996, this has been an average of 20 cases appealed annually. There are 2 or 3 cases annually since 1996 that go to circuit court, compared to 20 cases annually prior to 1996. This seems that LIRC has made its expectations for the factors clear in its decisions. Courts give great weight deference to LIRC decisions.
Question (Peterson): What is your opinion of factor 1 regarding the FEIN and if this should be dropped?
Mr. Fuentes responds that he does not think there is anything wrong with the way it is stated. It requires that someone apply or receive an FEIN. If you apply, that satisfies the factor. It is an indication that you intended to be in business, so I think it is a legitimate criterion.
Comment (Haine): I needed to have an FEIN to have a business bank account and was able to get one online very quickly.
Mr. Zeeh indicates that it may depend on the type of entity making the request.
Mr. Zeeh presents the outline regarding occupations raising frequent or contentious issues in employee status cases. The main cases are in construction, including drywallers, roofing, siding, and carpenters. There are many drywaller cases, at least one per hearing calendar. Drywallers can be those who hang sheetrock or those who do finishing. Finishers are harder cases because they tend to have a larger investment. We usually prevail in drywaller cases because employers cannot make the test. By the time they get to the hearing, the workers are long gone. There is no stability in the industry, and they may not have Social Security numbers. Roofing is not quite as big, and there are fewer siding cases. For carpenters, we are seeing those framing up the house. They have some skills, but they are not great. They may have equipment that they rent from the employer, and the rent comes out of the paycheck. These are not usually difficult cases. We see some of the employers repeatedly. Some of it seems to be industry practice.
Courier driver cases, such as FedEx, are close cases. The individual with the truck has insurance and expenses, owns the means of doing the work, and may be paid in such a manner to meet our criteria. We have a pending case with a Madison courier employer, Dunham Express, now pending at LIRC. Loan originator cases have declined as the housing market has declined. The facts of each case can vary significantly. Sports referees and coach cases are not frequent, but they have had publicity. The department has two cases pending, one in LIRC and one in circuit court. The liability at issue is about $200. Teacher and instructor cases come up two or three times per year. The result is usually that they will be found to be employees because there is minimal investment. Computer-related and office profession cases depend on the individual circumstances. There may not be an office, but there usually are expenses for unique software and equipment. Programmers may be using the client’s system and look more like employees. Troubleshooters are not common cases. We may see more telecommuting cases in the future, including answering services/reception.
Question (Buchen): Are they usually providing services for more than one employer?
Mr. Zeeh responds that they are doing it for more than one customer, but the contract is between them and the employer who makes contacts with clients.
Question (Haine): Are these duties that would have been performed on site in the past before improved technology?
Mr. Zeeh responds that phone answering services and bookkeeping might not be, but other telecommuting-type positions may be a result of new technology.
Writer cases depend on the individual circumstances. A regular columnist is likely an employee unless syndicated. If the writer is writing a story and submits it to be considered for acceptance, it may not be a service relationship but a buyer-seller relationship because they are buying a finished product. Regular reporters are likely employees. A lot of employers are worried about what a finding of employee status will mean for the IRS and DOR. We have specific language in our statute that says our decisions are not binding elsewhere.
Question (Buchen): Are writers not being considered independent contractors because they do not have equipment or possibility of a loss?
Mr. Zeeh responds that this may be part of the problem. We would also look at the other factors.
Question (Buchen): Do these cases come up because the writers make a claim for benefits?
Mr. Zeeh responds that when they make a claim for benefits they are asked who they worked for or performed services for in the last 18 months. We do not ask by whom are you employed. The responses trigger a fair number of issues that may be referred to audit. They may not think they are an employee as a writer, but we do not ask that question. If we ask them who they were employed by or if they had a separate business, we would be asking a layman to make a legal conclusion. LLCs are considered a separate business. Small businesses do not always observe the niceties of setting up as a separate business. Most employers are conscientious. We may have disagreements with them, but for the most part they try to comply.
Question (Gustafson): What would be your reaction to the situation where an individual pitched a proposal to ACME Publishing to do nonfiction on the subprime mortgage of book-size. They get a $10,000 advance. The book will not be more than 300 pages. The manuscript is due by April 1, 2009, but rough drafts will be submitted every three months. Countrywide Mortgage will have to be included in the book. The final product must be submitted in hard copy and electronically in a specific format. Is the person an employee?
Mr. Mathis indicates that there is a lot of direction and control. You may need to look if they performed services for others over the period of time. If they do nothing else during that time period, they may be more likely considered employees.
Question (Yunk): Assuming a worker is found to be an employee, do they have to change their previously filed Schedule C?
Mr. Zeeh responds no. Our law is not binding for other purposes. The IRS does cross-check our wage reports. Beyond that, they can ask for our audit data. We also have the right and put in stipulations that we will not take any affirmative action to report wages.
Question (Buchen): In homebuilding where the builder subcontracts out everything, those people are independent contractors of one sort or another. These cases tend to be between the subcontractor and employees as opposed to the general contractor and subcontractors, correct?
Mr. Zeeh responds that this is what we see with homebuilders, although a homebuilder can be an employer.
Comment (Peterson): In my experience, the smaller the contractor, the more likely they want the workers to be independent contractors. As a bigger employer, the problem we have is that individuals come to us and insist they are independent contractors when they are not.
Mr. Zeeh agrees that this is his experience as well.
Comment (Buchen): These materials and presentation have been very useful.
Mr. LaRocque indicates that the next meeting will be June 5th at 12:00 noon, followed by a public hearing in Green Bay.
Motion to adjourn (Yunk), seconded (Lump), passed unanimously.