No More Independent Contractors

Effective January 1, 2009, any contractor hiring independent contractors (otherwise known by that catchall term "piece worker") without a valid "Independent Contractor Exemption Certificate" in Minnesota will apparently be subject to a fine up to $5000 for each and every, plus being "reported" to various agencies for collection of WC, Unemployment, etc.

I know that everyone here is on the up-and-up, and that no one would even consider hiring people as other than bona fide employees, with all the bells and whistles and paperwork, so this probably doesn't apply to you. Even if you work in Minnesota.

However, if you do, you might look into it.

http://www.doli.state.mn.us/ic.html

When I googled the topic just now, Montana popped up too. Consider this a forecast of the future for construction; no more cash payments to independent contractors.

For "legitimate" contractors, this is a lot of leverage against the fly-by-nighters who typically hire subs on a cash basis, explicitly or implicitly declaring them to be "independent contractors." From the looks of the legislation, it could take off to other states as soon as the contractors in those other states get wind of it, and start screaming for protection from the fly-by-nighters.

It actually makes sense, once you think about it. Legislation like this levels the playing field, and throws the responsibility for compliance on BOTH the contractor hiring the indy, and the indy doing the work.

Its coming to your town soon.

been that way in VA, and I for one am glad. If I need to be licensed, so do they

I could only hope! This would be a great step in the right direction!

It all depends on enforcement.

Who is going to notify the regulatory agency?

The sub?

The Primary?

The consumer getting the benefit of a cheaper price?

How will they audit this?

I would love to see it, especially if they could eliminate the "Cash" payed subs. off the books, but that is unrealistic to think that they could or will.

Nice thought though.

Ed

here i was told they audit payroll. If you show subs, then they want to know where is the copy of their license? No license? then they are employees, where is the workers comp paper work at?

It's a nice thought, however, with the government aiding and abetting all the Illegals, it's all a sham.

So, is it intended to be a comprehensive audit of everyone or just random or just wait until someone gets turned in?

Ed

From what I gather right now its random.

NJ does something similar. If I don't have a State Tax ID from my sub, I have to send 7% of the wages directly to the State. Getting a Tax ID is no problem. I just have them fill out a single page form, mail it in. They get their tax ID in about 10 working days. Then I can pay them as a normal 1099.

If I don't get a Tax ID and still pay them direct... I can face jail time.

You're an accountant in your spare time?

Are you wiping your sub's runny noses too?

all that law does is clarify and allow punitive action for laws that are already in place.

The independant contractor situation and laws have been abused so much that apparently Minnesota is tired of it and has legislated laws to correct the problem.

good to hear.

the problem still is; all the logistics Ed pointed out.

but concerning Eds post of:

I don't quite understand this. An IC is effectively a "cash" paid provider. As to being "off the books", that is the GC committing an illegal action already and if the IC fails to file their taxes properly, then it is them breaking laws already in place. These laws will not make a criminal into a good person but it will require more of them to toe the line a bit closer.

remember; of all the crimes Al Capone committed, it was income tax evasion that eventually put him in prison. While much of our court system seems to be lax in their actions, the IRS is like a pitbull.

Yep!.. Allow me to sump up that nicely in one sentence ::>

Money$$ is greed, money$ is power, money$ is crime, money$ is desire, money$ is intention, etc. ..money$ is King,...& money$ makes EVERYTHING and ANYTHING else on Earth possible!! LOL

GC or Primary Specialty Contractor.....whatever they may be called. What I see most prevalent in the specialized contracting fields is a Roofing Contractor who has NO employees, but subs out all of his work.

Those that pay cash to their subs to evade the potential audit would not be able to be touched without an extensive audit of any/all checks cashed against their account.

Most cash their checks at alternative locations, such as a currency exchange or a liquor store.

The ones that MOST abuse the system will still be able to carry on, unless specific allegations are made as to how they short circuit the system.

So who realistically, are going to be the contractors who get caught and penalized?

It will be the ones who are trying to make the transition from being totally erroneous in their payment methods to trying to pay partially, some workers as day laborers instead of employees. These will get caught when one of those day laborers tries to make a claim for unemployment benefits and find out their SS # account and employer ID was never funded.

The only way that a system could have a chance of working, is to find the ones working and trace back the audit trail from the jobs permitted and done.

Will job sites ever get scrutinized that much? I doubt it.

Ed

Why would someone pay a sub cash? Let's say you pay a sub $100,000 a year under the table you will end up paying $20,000+ in taxes on the money. If the sub is really a sub he/she should pay their own taxes.

I would assume that the $20,000+ is much cheaper than comp and employee taxes.

Roofing Work Comp is 38 points, so on that 100,000 payment, someone saved 38,000 right there.

It adds up quick.

Ed

I'll stop complaining about my 9.17%!

38% + employee taxes + limited benefits (a couple days off) could easily exceed 50%! I can now see how people are tempted to break the law.

the insurance companies audit each company every year. If you don't have your paperwork for every person you paid they inturn charge you for the workers comp. This doesn't help anyone who is paying their subs cash.

Same in MA, without a copy of their WC and insurance I have to pay comp on them. If the auditor wants to play hard ball they can turn you over to the state for insurance fraud.

As far as anything with cash, a few months ago the Fed's caught a RI couple not recording cash. The numbers were something like 80k year #1, 180k year #2 and 200k+ year #3 that they tried to hide (fuzzy memory google it for better numbers).

Some day MOST tradespeople will be forced to play on the same ball field.

My biggest problem is these "subs" without a license getting homeowner
jobs. They are kicking my butt out in the field. There seems to be no
competing against them. They have none of the expenses that we as
licensed contractors have. Sucks.

The homeowners are not audited. Seems rather unfair to me that the
contractors are audited and homeowners - whom spend a fortune on
remodeling - aren't accountable for hiring these guys.

I am in Washington state.

Bernie

So market to a better clientèle. Stop competing with the pool of fish from the unemployed. You'll find yourself waisting a lot less time as well and when you do work, you'll be making money.