Could New Legislation Hamper Independent Advisors?
By Ruthie Ackerman
February 11, 2010

The business model for independent brokerage firms is under threat, calling into question the livelihood of over 178,000 registered representatives.

Currently independent brokerage firms pay reps on an independent contractor basis, allowing them the independence of working for themselves. But legislation that was introduced to the House in late July by Rep. Jim McDermott (D-Wash) and to the Senate in December by Sen. John Kerry could lead to high costs and extra hassle for independent broker-dealers.

The legislation titled the Taxpayer Responsibility, Accountability, and Consistency Act of 2009 would remove the safe harbor provision in Section 530 of the Revenue Act of 1978, which could force independent broker-dealers to reclassify independent financial advisors as employees, subjecting the firms to back taxes, penalties and interest.

Dale E. Brown, the president and chief executive officer of the Financial Services Institute, a membership group which represents 118 independent broker-dealer firms, said in an interview Tuesday that although FSI supports the goals of the legislation to correct abuses in independent contractor classification, the concern is that the financial advisory community gets caught in the unintended consequences.

“The independent broker-dealers and the independent contractors they license have a three decade record of compliance with applicable rules so there is no need for the IRS to be given any reason to question whether or not our industry is appropriately classified,” he said. “We are an extremely regulated industry. There are no cash transactions so everything is highly auditable and t ax compliance is not an issue.”

The Financial Services Institute is also worried that if the Internal Revenue Service succeeds in forcing independent broker-dealers to reclassify their advisors as employees instead of independent contractors, the excess cost would shatter their business model and take away a lot of their independence.

“Our business model is unique because instead of advisors being employees they are self-employed and own their own advisory business,” Brown said. “They decide what hours they will work, they rent their own office space, hire their own staff, and assume all the risk of being a business owner. This legislation would pull the rug out from under one of the foundations of our business model.”

If independent broker-dealers go out of business or are hindered in their ability to compete because of rising costs that would mean less access to affordable financial advice for Main Street, Brown said.

But a press release on Kerry’s website states that the legislation will “provide workers with the rights they deserve” and says that the “current tax loophole, which allows employers to misclassify some workers as “independent contractors,” denies employees valuable rights and protections.”

The legislation will ensure that workers’ compensation, Social Security, Medicare, overtime, unemployment compensation, and the minimum wage are offered to all employees, the press release stated.

Be sure to read the latest CFICF e-newsletter, “Freelancers face forced conversion to employee status” (full copy is below). If you’re not already signed up to receive these communications, then sign up today.

Dear Independent Contractor,

As we settle into 2010, new anti-independent contractor legislation at both the state and federal level is taking quick form. As evidence of that, the Massachusetts Joint Committee on Labor and Workforce Development will hold a hearing on a proposed law that would affect freelance writers and editors (and lots of other independent contractors). The one-word change in the Massachusetts General Laws would stiffen the definition independent contractor, forcing even more companies to covert their ICs to employee status. Never mind that most ICs want to remain independent.

Once again, they’re spinning the change in the law under the guise of “protecting workers.” The reality is that independent contractors caught in this trap will not be protected at all. If already struggling companies are forced to reclassify their freelancers as employees, many could not afford to retain these contractors. Jobs would disappear – and so could the companies that rely on the flexibility independent contractors offer them.

That said, we must start off the new decade strong and take action now! The Coalition is a voice for America’s 10 million independent contractors and the voice of each and every one of you is extremely important. With new legislation threatening our livelihoods at every turn, we simply can’t sit around and be passive.

If you’re a freelance writer or editor – or any sort of independent contractor or company that relies on them – visit www.cficf.org to learn more and voice your opinion. And don’t forget to look for continuing updates and news on this law and more at www.twitter.com/IndContractors.

Let us know what you think about the strong possibility of more states adopting laws that would prohibit your lifestyle and freedom by joining in on the discussion at our Forum.

And for those of you willing and able to help support the work we do here at the Coalition, you can click here to donate. Any amount – large or small – is extremely appreciated. After all, if it wasn’t for your support, we wouldn’t be around.

Wishing you a safe and prosperous 2010,

David Dunnigan
Executive Director
Coalition for Independent Contractor Freedom

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Federal Court Dismisses All California Wage and Hour Claims From Proposed Class Action Lawsuit, SuperShuttle Commends Judge’s Decision

PHOENIX, Jan. 27 /PRNewswire/ — U.S. District Judge Jeffrey S. White has dismissed all claims based on California law from a pending lawsuit, which had sought to bring these claims as a state-wide class action. The court’s order, dated on December 22, 2009, is a major development that could impact many planned and pending class actions throughout California. Judge White based his ruling on the court’s lack of “subject matter” jurisdiction, noting that the plaintiffs sought damages based on practices that had already been approved by the California Public Utilities Commission (“CPUC”).

“We are very pleased with Judge White’s decision. SuperShuttle’s franchise-based business in California was established years ago in response to CPUC actions that specifically permitted independent contractor business models, in order to ensure the availability of safe services at the lowest cost to consumers in California,” said SuperShuttle Chief Financial Officer Tom LaVoy.

Judge White dismissed all ten California law-based claims asserting violations of California’s Labor Code and unfair competition law from an action brought on behalf of drivers for a nationwide airport shuttle system. The order strips the litigation of all claims other than those based on the federal Fair Labor Standards Act (“FLSA”). Because the federal law requires plaintiffs to specifically consent to the action in writing, and provides plaintiffs with shorter limitations periods, fewer claims and less favorable methods of calculating damages, the number of claimants is greatly reduced.

The court’s order relied on provisions of California law banning lawsuits on subjects addressed by CPUC regulations, if the lawsuit asks the court to “review, reverse, correct, or annul any order or decision of the commission or to suspend or delay the execution or operation thereof, or to enjoin, restrain, or interfere with the commission in the performance of its official duties.”

The plaintiffs had claimed that the drivers should be treated as “employees,” based on the level of control that the defendants asserted over plaintiffs’ operations. However, the court focused on CPUC regulations specifically permitting “independent” status notwithstanding control over their operations. The CPUC has mandated such control as a means of ensuring public safety and convenience, while at the same time expressly authorizing “independent contractor” business models to ensure the availability of services at the lowest cost to consumers. Examples cited by the court included the CPUC’s General Order 158-A, and the CPUC’s decision in a case involving a SuperShuttle competitor in 1996.

The court’s order dismisses plaintiffs’ claims for alleged violations of California laws relating to minimum wage and overtime, business expenses, deductions from “wages,” “coerced” purchases, meal periods, wage statements, payroll records, and waiting time penalties, as well as plaintiffs’ claim based on California’s unfair competition law. The hearing and briefing of plaintiffs’ motion to certify the California-law claims as a class action have been vacated by the court. The lawsuit will now proceed as a “collective action,” reducing the size of the plaintiff pool by approximately 75%, as to the federal overtime and minimum wage claim. SuperShuttle plans additional motions to address this remaining claim.

“SuperShuttle has aggressively enforced awards of attorneys’ fees and costs resulting from successfully defending other actions brought by drivers,” said LaVoy. “We are hopeful that the court’s order will help us achieve a quick resolution of the remaining claim. However, we will certainly consider all our options if we have to file additional motions to get it dismissed, including a request that the court require the plaintiffs to pay our attorneys’ fees and costs.”

SOURCE SuperShuttle

The Financial Services Institute (FSI) plans on lobbying against recently re-introduced legislation in the Senate that threatens financial advisors’ “independent contractor” worker classification. On December 15, Senator John Kerry (D-Mass.) introduced the “Taxpayer Responsibility, Accountability and Consistency Act of 2009,” which would change tax rules regarding the classification of independent contractors.

Generally, the bill, which has been hanging around since 2008, is seen as making it harder for employers to classify workers as independent contractors. The FSI and independent broker/dealers fear this bill, because, if it became law, it might scuttle the independent-contractor financial advisor business model. Will it become law? That’s anyone’s guess, but FSI and IBDs will be watching this issue carefully in 2010. After all, President Obama and the Democratic-controlled Congress are among the most liberal ever.

Similar to the House bill introduced by Rep. Jim McDermott (D-Wash.) on July 30 (H.R. 3408), the Senate bill’s core provisions make it more difficult for employers to classify workers as independent contractors and more costly for the misclassification of workers.

In the fall, FSI President Dale Brown said the group had discussions with Rep. McDermott, who agreed to work with the group to find a solution to the bill’s unintended consequences for independent financial advisors affiliated with independent broker/dealers. When Congress reconvenes in January, Brown says FSI will engage Sen. Kerry’s staff and members in the Senate Finance Committee in similar conversations.

FSI says it fears the Senate and the House bill would give the IRS reason to question the independent-contractor status of independent financial advisors affiliated with IBDs. Furthermore, independent b/ds fear IRS scrutiny not only for worker classification, but also possible back taxes, fines and court fees that could financially cripple the independent-contractor business model. Fines for an intentional misclassification can equal the total amount of federal income and employment taxes owed for the weeks or months the individual worked going back three years.

Among other things, the proposed legislation would eliminate the safe harbor provision Section 530 of the Revenue Act of 1978, which allows organizations to treat a worker as an independent contractor for income tax and employment tax purposes even if a common law test classifies workers as employees. Employers only need 530 relief when the IRS determines that workers are misclassified and have issued fines to employers.

“The ideal scenario is that whatever is finally passed makes it very clear that independent b/ds are not the target because we are not the problem they (Congress) are trying to address,” says Brown.

So far, legislation in the House and Senate aiming to change tax rules regarding worker classification has failed to become law, but the recently introduced legislation could gain the support of President Obama, who co-sponsored a similar bill in 2007 when he was a U.S. senator.

Be sure to read the latest CFICF e-newsletter, “Sen. Kerry launches new threat to Independent Contractors” (full copy is below). If you’re not already signed up to receive these communications, then sign up today.

Dear Independent Contractor,

As 2009 draws to a close, a new threat appears for our nation’s 10 million independent contractors. Sen. John Kerry, D-MA, recently introduced legislation to crack down on employers who classify their workers as independent contractors. Kerry’s proposal would, among other things, change a section of the tax code known as “safe harbor” that allows workers to be considered independent contractors.

Of course, they’re spinning the bill under the guise of “protecting workers.” The reality is that businesses – large and small – caught in this trap will not be protected at all. If businesses are forced to reclassify their independent contractors as employees, many would be unable to afford to retain these contractors.

That in mind, now (more than ever!) is the time to let your voice be heard. Join us in creating an effective political voice for independent contractors and the companies that use their services. After all, if we don’t take a stand and let our voice be heard NOW, next year’s holiday season could be far from jolly for ICs and their families.

The federal government and many of the 50 state governments still want to force independent contractors into employment status, costing the ICs the businesses they’ve worked hard to build. And this comes, of course, on the backs of our nation’s small businesses – ICs and many of the companies that use them – and as a further challenge to the healing economy.

If you’re an independent contractor – or a company that relies on them – visit www.cficf.org to learn more and voice your opinion. And don’t forget to look for continuing updates and news at www.twitter.com/IndContractors.

Let us know what you think about the strong possibility of more states adopting laws that would prohibit your lifestyle and freedom by joining in on the discussion at our Forum.

And of course, from all of us here at CFICF, a safe and pleasant 2009 holiday season to you.

Sincerely,

David Dunnigan

Executive Director

Coalition for Independent Contractor Freedom

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Be sure to read the latest CFICF e-newsletter, “Government should be turning to – not against – independent contractors” (full copy is below). If you’re not already signed up to receive these communications, then sign up today.

Dear Independent Contractor,

A Bureau of Labor Statistics job report out a few days ago underscores the importance of temporary workers, who some experts predict could become a QUARTER of the American workforce as contract work grows. When the economic outlook is uncertain, small businesses (and big businesses for that matter) call more often on independent contractors, who are able to offer the much-needed flexibility for the ups and downs of our economy.

However, as 2009 draws to a close and the recession forges on, big changes in labor policy continue to threaten the very things that helped make America the land of opportunity – small businesses and a free market economy. To illustrate the irony of government’s efforts to curtail independent contracting:

• According to a report by California-based Nelson Staffing, there is a long-term shift towards contractors in the workplace.
• Littler, the No. 1 employment law firm, predicts half the jobs created in the recovery will be filled by contractors, consultants and other temps.
• According to Business Talent Group, which places executives, fifteen years ago most temporary slots were for office work, but more than half are now filled by professionals such as engineers and physicians.

You may think these facts alone would be enough to convince government of the value of independent contracting in the economy and put a halt to anti-independent contractor legislation… but they’re NOT.

In the face of facts like these, several states (most recently Nebraska) are considering more anti-contracting legislation. Of course, this is IN ADDITION to the federal threat and the several states that have already passed new anti-independent contractor legislation. And let’s not forget what this legislation would do to our healing economy.

Independent Contractors and the companies that use them can do something about that. We are more than 10 million strong and growing. If we come together as one voice, government must pay attention.

We continue to urge all of you to come together at www.cficf.org. And please, urge your friends and colleagues to sign up at http://www.cficf.org/join-us.

Sincerely,
David Dunnigan
Executive Director
Coalition for Independent Contractor Freedom

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Parcel shipping: FedEx receives more good news from the IRS regarding independent contractor classification

Jeff Berman, Group News Editor — Logistics Management, 11/10/2009

A little more than a week after receiving good news from the Internal Revenue Service regarding how it classifies independent contractors, FedEx got some more positive feedback, when it stated today that the IRS audit team has decided not to assess any tax or penalty to any of FedEx Ground’s independent contractors, including its FedEx Home Delivery independent contractors for the years 2004-2006.

Company officials added that similar issues may be audited for calendar years 2007 and 2008, but they said that they believe the IRS audit team should reach the same conclusion on these issues for each of these years.

On October 30, the IRS audit team issued a decision, stating it would not assess any tax or penalty with respect to any of FedEx Ground’s independent contractors, including FedEx Ground independent contractors for 2002. FedEx disclosed this information in an 8-K filing with the Securities and Exchange Commission.

“FedEx Ground’s independent contractor model has been tremendously successful for our customers, the hard-working independent contractors and FedEx Ground for more than 20 years,” read a FedEx statement. “It is clear that the IRS decision today further validates this business model and we look forward to continue growing the model for many decades to come.”

In a recent interview with LM, Jerry Hempstead, president of Orlando-based Hempstead Consulting, said these rulings are a positive for FedEx in its argument that the drivers for their ground operation are in fact not employees of FedEx but independent businessmen who provide pick up and delivery services for FedEx ground and FedEx Home Delivery.

“This in no way is the end of the litigation,” cautioned Hempstead. “Several more states have piled on of late claiming that the drivers are FedEx employees. If it were ever ruled that they are in fact FedEx employees, it could significantly increase the company’s operating expense, which would then be passed onto shippers as higher prices. For now there is no immediate threat of that.”

The issue of how FedEx classifies its independent contractors has come under scrutiny in various forms in the past.

On October 20, state attorney generals in New York, New Jersey, and Montana said they are considering suing FedEx Ground for violations of state labor laws in an effort to protect their states’ workforces and enforce labor laws.

The attorney generals wrote in a letter to FedEx Ground that they contend the company unlawfully misclassifies its drivers as independent contactors, leaving these drivers without workers compensation coverage and protection by anti-discrimination and labor relations laws, among other laws. The letter also noted that these “drivers are required to spend thousands of dollars out-of-pocket for their trucks, repairs, fuel, and uniforms while being held to strict FedEx Ground rules that control the hours they work, the way they dress, and their ability to contract with anyone else outside the company.”

And in September, the Teamsters Union said in a letter to FedEx shareholders that its business model for FedEx Ground is highly flawed, as well as “an unlawful and unsustainable business model. The Teamsters also said that FedEx’ “misclassification” of independent contractors has allowed the company “to evade expenses like payroll taxes, overtime pay, and benefits.”

Despite its travails over independent contractor classification, FedEx benefited from a ruling in April, when the U.S. Court of Appeals issued a ruling that stated FedEx Ground independent contractors are independent business owners rather than employees and are outside the jurisdiction of the National Labor Relations Board.

Be sure to read the latest CFICF e-newsletter, “States becoming more aggressive in fight against Independent Contractors” (full copy is below). If you’re not already signed up to receive these communications, then sign up today.

Dear Independent Contractor,

With Washington focused on difficult healthcare legislation and perhaps even more difficult financial regulation, their labor policy agenda seems to have taken a backseat… for now.

However, this doesn’t mean independent contractors can sit back and relax. While the federal anti-contracting agenda waits in the wings, states are:

• Adopting legislation to force the classification of independent contractors as employees
• Trying to take away the rights of independent contractors in order to gain new revenue to help shore up their budget deficits
• Revising definitions of “Employee Misclassification” in legislation of various sorts

Not only is the new anti-contractor legislation popping up in many states — up to 23 states, according to a recent news report — it’s making its way through regulatory and executive agencies as well.

Now, state Attorneys General appear to be getting more aggressive in their fights against the independent contractor model.

Making big news this week, the Attorneys General of New York, New Jersey and Montana plan to sue FedEx Ground. They’re claiming the unit’s classification of workers as independent contractors violates state labor laws.

Don’t let this fool you. It isn’t just about FedEx – it’s about ALL independent contractors. States and the federal government want to redefine independent contracting… and the result could be to redefine many independent contractors out of business.

Don’t let this happen in your state. Join us in creating an effective political voice for independent contractors and the companies that use their services. Many of the 50 state governments want to force independent contractors to become employees, costing the ICs the businesses they’ve worked hard to build. And soon the federal government will be joining in. All this comes, of course, on the backs of our nation’s small businesses – and economy – at the worst possible economic time.

Let us know what you think about the strong possibility of more states adopting laws that would prohibit your lifestyle and freedom by joining in on the discussion at our Forum. Additionally, don’t forget to sign up for news and continuing updates on Twitter.

Sincerely,
David Dunnigan
Executive Director
Coalition for Independent Contractor Freedom

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IRS v. Trucking Independent Contractor History

October 19, 2009
* Analysis by: Jay Thompson
* Analysis of: ‘Contractor’ Label Provokes Legal Disputes
* Published at: online.wsj.com

Summary

The trucking Independent Contractor (IC) pool is a big one. Surveys show that one-third of truckers are IC’s and 80%+ of them are leased to fleets. The biggest player is FedEx Ground – hence the long-time target on their back by the Internal Revenue Service (IRS), States and unions. Other big numbers come from the Intermodal sector, which is also under fire. I agree with my esteemed colleague John Schultz and offer the following overview.

Analysis

As Independent Contractor programs ballooned through the ‘90’s, we assisted in creating hundreds of contracts for fleets. Our questionnaire addressed basic financials to be paid (pay rates), services to be offered (fuel, license plates, truck sales, insurance, etc), regulatory compliance (DOT, IRS, etc.) and a bunch of legal risk-mtigation mumbo-jumbo (from transport attorneys).

While we worked with major fleets, our company picked up and ran distressed trucking companies. We always favored refrigerated and flatbed companies, which were some of the first with large IC concentrations. Some private fleets we started working with were Monfort Beef, Leprino Foods (cheese) and Cargill (Excel) Beef. Each were very professionally run, but only Cargill’s fleet is still going today.

The small distressed trucking companies we picked up were in trouble. One saying is so true in that if there are problems in one part of a business, there will be others. It is common for companies in trouble to “put-off” addressing compliance issues and taxes, so we got to know the Denver IRS folks. While there were some problems with aggressive approaches in the mid-‘90’s, we also saw the “kinder-and-gentler” IRS. Depending on the agent, the IRS can be here to help. Here is some of the guidance offered:

The IRS operates to “20 General Factor Common Law Rules” to assist all businesses in identifying between an “Independent Contractor” and an “employee”. This is done to clarify who is responsible for the payment of payroll taxes, social security, etc.

The IRS looks favorably on positive answers to the following ten questions when dealing with IC / owner-operator classifications:

1.) Does Contractor have a significant investment in their business? (Weighed heaviest)

2.) Can the Contractor realize both a profit and a loss? (Weighed a close second)

3.) Does the Contractor hire, direct and pay helpers?

4.) Does the Contractor own (or is purchasing) their own equipment?

5.) Does the Contractor have fixed / recurring liabilities? (Fuel, maintenance, taxes, etc.)

6.) Is Contractor pay based on worked performed, commission, or trip basis?

7.) Can the Contractors services affect his own reputation?

8.) Does the Contractor pay for or attend free, fleet orientation / training courses?

9.) Are the only files kept by the Fleet on the Contractor for DOT purposes?

10.) Does the Contractor have the ability to pick or turn down loads?

Fleets like FedEx Ground can answer in the affirmative for all of these, but some argue about number 10. Their routes are an asset (can buy / sell), so that’s makes that one more positive. It’s a similar model to many of the companies who run routes for mechanics’ tools like Snap-On, supermarkets like for off-branded potato chips, mobile window repairs, home food delivery, home appliance repairs, etc.

Other fleets like UPS contract out excess freight to fleets with IC’s during the Holidays (pulling UPS trailers). Many well-known fleets with well-run IC programs include Con-way Truckload, Schneider National, Swift Transportation, JB Hunt, Knight Transportation, Landstar System, Werner Enterprises, US Xpress, Crete Carriers, Quality Distribution, Kenan Advantage, Dart Transit, Marten Transport, most Household Movers and thousands of others. Then again there is the port / rail Intermodal marketplace involving some already noted plus Pacer and Hub.

Most complaints are from current or ex-contractors who never paid taxes on their 1099ed income and got in trouble with the IRS, others who opted out of Workers Compensation and got hurt and even others who applied for unemployment benefits who never paid into it. Many fleets offer referrals to help get Contractors taxes done and also offer occupational accident insurance (some require OC/AC) in lieu of Workers Comp. Many contractors at FedEx Ground and other fleets actually end up with multiple trucks where they pay their employees’ payroll / Social Security / unemployment / Workers Compensation taxes.

Granted there are good fleets and contractors who play by the rules. We have found that those fleets who do still have the periodic complaint are primarily due to IC’s not complying with the rules. However, outside pressure like going on today can change the game rules!

Jay Thompson consults with leading institutions through GLG.

Increased IRS Audits, Regulations Mean Closer Scrutiny of Employers Over Worker Misclassification, Says Albany

Independent Contractor Qualification tool provides consistent process for managing 1099 compliance.

Mountain View, Calif. (PRWEB) October 20, 2009 — New IRS programs and increasing scrutiny by states will catch more employers in the misclassification of temporary and contract workers, according to The Albany Group, a global contingent workforce management firm.

The IRS has announced it will begin an intensified audit program in February 2010 that will review 6,000 randomly selected companies for underpayment of employment taxes.

In addition, states such as Massachusetts, New Hampshire and Maryland have recently ruled in favor of stringent legal standards for independent contractor classification, and increased penalties. Other states are expected to similarly clamp down on worker misclassification.

“Over 70 percent of all audits result in finding misclassified workers, and the IRS and EDD prevail in over 90 percent of cases that go to hearing or trial,”said Jason Posel, senior vice president. “Employers need to look at how they currently deal with independent contractors and implement processes for ensuring compliance with all regulations.”

With audits going back three years, most companies have a hard time proving past compliance when they don’t have a reliable process in place, according to Posel.

Penalties are onerous and so are the subsequent claims of non-payment for overtime and benefits. Northwestern Mutual was recently hit with a $200 million lawsuit by employees claiming to have been misclassified as 1099’s, joining the likes of Microsoft, HP and Time Warner that have faced various judgments in the tens of millions of dollars. Fed-Ex, who were issued a multi million dollar fine by the IRS, continue to face multi-state class action law suits by former misclassified contractors.

ICQ 2.0, Albany’s Web-based Independent Contractor evaluation program, combines IRS and state law to produce a clear, consistent, and documented process for 1099 compliance. A simple online questionnaire for hiring managers and prospective contractors enables Albany to advise employers so they don’t unintentionally violate federal and state-specific 1099 regulations.

Albany also offers co-branded and private labeled compliance “microsites” that are easily integrated into an organization’s existing process, educating all stakeholders on compliance risk. A demo of the program can be viewed at www.thealbanygroup.com/icq.

About Albany
Albany’s innovation and professionalism over the last 20 years has helped it grow into the market leader for contingent workforce management solutions. With offices on six continents serving clients in more than 70 countries, Albany offers a variety of national and international workforce solutions, including contractor payroll, Independent Contractor compliance, Managed Service Provider programs, Recruitment Process Management and Consulting.

Contact:
Jason Posel
Senior Vice President
1-800-664-5508
Jason.Posel (at) thealbanygroup (dot) com
www.thealbanygroup.com/usa

This press release was distributed through PRWeb by Human Resources Marketer (HR Marketer: www.HRmarketer.com) on behalf of the company listed above.

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