Labor departments, state and federal, need to go.
I sell software to contractors of all kinds, including general and speciality construction, landscapers, plumbers, etc. Most of my clients have a mix of W2 employees and 1099 independent contractors and partners. For those of you who don’t know, these letters/numbers are classifications from the US Tax Code and carry with them implications not just for personal and corporate income tax but things like expense reimbursement, employee benefits, workers compensation, and — your favorite and mine — Obamacare. There are advantages and disadvantages to both but, as many of you know, independent contractors are generally cheaper since employers don’t have to carry the extra weight of benefits and other related costs.
Today, the CEO of a company that, among other services, cleans and paints apartments when tenants move out, told me a story that sent my blood to 212 F. He has some employees but the majority of the people performing his services are independent contractors. This company has been in business eight years, and has been reviewed by the Stasi at the various labor departments five times.
Five times in eight years.
What could they be looking for? As it turns out, scalps.
You see, if you give your independent contractors any “tool” to do their job — I put that in quotes because seemingly insignificant items like logoed t-shirts are considered tools — the wonderful folks at the state or federal DoL may decide that no, your independent contractors are not contractors. They are employees. And if you haven’t been paying them and the associated costs accordingly, you’re going to be fined. Also, if you’ve been paying your independent contractor for years and, after all that time he files for unemployment benefits, the labor department is going to side with him and make you pay up. No, it doesn’t matter what you think, say, or do. It doesn’t matter that you can prove your people signed documentation that clearly states they are willing, independent contractors. It doesn’t matter that they didn’t read or understand the contract they signed in your presence. You are wrong. They are employees.
Why would these people care? Why does Big Brother care about anything, other than to tax, fine, and control?
Along with the federal government, each state has its own set of several to over 10 rules governing what defines an independent contractor versus employee. God forbid you operate in more than one state but if you do, you not only have to be well-versed in each state’s laws to know how to comply, my CEO friend told me that if you violate just one of those rules, the authorities consider that a violation of all of them.
Isn’t this fun?
Don’t let yourselves believe that this issue hits big business. I assure you, the people hit hardest are small business owners. Large corporations that employ thousands of people have the legal and lobbyist resources to endure this needless harassment. This isn’t a rip on big business. But don’t continue the common misperception that big business is conservative. Big business is about big business, crony or otherwise. It has very little to do with individual freedom and personal sovereignty.
In the next year or two, watch the news for stories about the great taxi service disrupters Uber and Lyft. In September of this year, the independent contractors of Uber were granted class-action status by a US District Court judge in — surprise — California because a few Uber drivers wanted to get compensated for their vehicle maintenance expenses. Apparently, they didn’t read their own contracts.
Imagine what our GDP growth and unemployment rates would be if we enjoyed but half of these pointless regulations.