Classification of Workers

Now this may be a sore subject for a lot of the trade contractors out there. I have seen MANY people argue that the way they classify their workers as independent contractors, and not employees is correct. Their argument? It's the way they've always done it. As in the installation world, just because it's the way you've always done it, doesn't mean it's the correct way!

Over the past few years the IRS has implemented a set of rules to help employers classify their workforce. There are three main categories when looking at whether a worker is an independent contractor or an employee. 

1. Behavioral: Does the employer have the control over how and what the worker does their job?

2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension, insurance, vacation pay, holiday pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Businesses have to look into all three aspects and make a determination as to classify their worker as either an independent contractor or employee. Although the worker may fit into a different category in either of the three categories, it's important to take all of it into consideration, especially the extent of businesses right to control or direct the person when you make a final decision as how to classify. 

If you're still unsure of how to classify a worker, the IRS has a form you can fill out here. This form can be filled out by either party (the business, or worker) and may take up to 6 months for the IRS to make a final determination for the worker. Workers who believe they've been misclassified can also file form 8919 to figure and report the employee’s share of uncollected Social Security and Medicare taxes due on their compensation.

Misclassification of an employee can lead to being liable for the taxes of that employee. The first line of Internal Revenue Code section 3509 states :

- When an employer erroneously treats an employee as a non-employee and does not withhold federal employment taxes, the employer is liable under IRC 3102 and IRC 3403 for the employee's share of social security and Medicare tax and the employee's income tax withholding.

There are some relief efforts made by the IRS as well. Section 530 can relieve you of having to pay the workers employment taxes If you have a reasonable basis for not treating a worker as an employee (you must not have paid anyone else in a similar position as an employee in order to qualify). There also the Voluntary Classification Settlement Program (VCSP) that provides the opportunity to reclassify workers as employees for future tax periods with partial relief from federal employment taxes. 

In the flooring industry we are surrounded by companies who misclassify workers. Labor companies who try and "make it right" by purchasing their workers insurance policies. A group of individuals working together day in/day out led by a single person but are somehow "independent" from one another. These cases also play into the fact that a lot of these people also do not file their taxes. Why? They owe a bunch of money at the end of the year, taxes that should have been throughout the year, but was never accounted for, so they skip filing altogether. 

Workers deserve the protections of being an employee when the circumstances are there. They shouldn't be liable for the employers portion of their taxes, social security and medicare. If you think as a business owner you're saving money by not having to pay for workers comp insurance, bad news, you're still liable because the worker is misclassified and should have been an employee all along. So if you have workers who should be employees, do your part, use the governments relief efforts and reclassify those "independent contractors" as employees, they deserve it! 

Feel free to comment below.

For direct questions or comments email daniel@preferredflooringmi.com

Prevailing Wage

While Michigan is in the process of verifying signatures from a petition to repeal prevailing wage, I thought it would be appropriate to give our side of the story. 

 https://timeforrepeal.com/michigans-prevailing-wage-law-is-tied-for-worst-in-the-us/

Before starting our business, my brother and I worked for a local shop. We had been in a handful of prevailing wage projects and always heard the office staff talking about how burdensome it was on the company. Although it was GREAT as an employee, we were soon to learn the other side and why it isn’t so great. 

 “The Prevailing Wage law also allows for safety and training programs that are rigorous and hands-on. With prevailing wage in place, Michigan’s skilled tradespeople can safely build the vital infrastructure our state needs with craftsmanship and quality.”

-  http://www.michiganprevails.com/

While many pro prevailing wage advocates ensure that it allows for training programs that are “rigorous and hands on”, I have not set foot on one of these programs. I have been in the flooring industry for 18 years and have set foot on many prevailing wage job sites and not once was a training program even offered. I’ve been on many where we did not even have a safety manual. Where were these programs when we were on these job sites? Any training we have ever done has had nothing to do with prevailing wage. In fact, I can argue that on all of the projects (flooring) that are put out for bid in our area (West Michigan) have the least qualified people on the job. Minimal training, minimal safety. Why? Read our blog about low bids to get an idea. 

The projects that we’ve been on have actually not been more expensive in the labor market, they’ve been lower. How could this be? Flooring companies hiring subcontractors that know little to nothing about the prevailing wage laws. Hiring us, and in some cases not even telling us it was a certified payroll job until we were complete with the project. Telling us how to fill out the certified payroll so only partners were on there, to make it look as though no prevailing wages were needed to be paid. Telling us it’s on on “honor” system and none of the certified payroll is reviewed. Hiring other subcontractors who treat their employees as 1099 subcontractors even though they don’t have sufficient insurance. Crews of 3-4 people who all work together everyday, but are “independent” from one another. The companies contracting the work to us then throw out ridiculous low bids on the labor because who cares, they’re making their profit off of the material. Labor LOWER than market value, to companies that couldn’t pay their employees the necessary wages even if they wanted to. 

While the wages seem great to the employees, it makes these projects higher in cost and that money comes out of your pocket.  

After starting a job at a well known college in our area, we did the math on how wrong this companies bid was. If we paid 3-4 guys the wages necessary, we would have to get the job done in one week to break even. This project was a THREE WEEK project. How is it fair for them to throw these SUPER low bids and get the work, and then try and weave around the system to get the work done? It’s not fair for anyone! Yet it happens, year after year. Using the smaller companies who need the work in order to survive, by making them risk everything because the knowledge they lack about the situation. 

 We still have companies who call us, asking for numbers on prevailing wage projects. The math is simple, the wages are 2-3 times as much, so multiply normal rates by that. If anyone in the flooring industry actually throws those numbers out like that we’d be laughed at, even though it’s exactly where the numbers should be  

Instead of prevailing wage, we should convert everyone overseeing that to search out compliance. This contractor hasn’t reported wages in years, or this contractor sure has a lot of 1099 contractors that only work for them. Maybe then our industry could support the wages necessary to combat the worker shortages that we are experiencing. 

Visit here to read on other factors on why prevailing wages are not a necessity.  

Feel free to comment below.

For direct questions or comments email daniel@preferredflooringmi.com

Low bids. . .

We’ve all been there, losing a bid, and sometimes it stings!  Living in a place where the economy is booming, buildings being built left and right, developments springing up out of no where. Why does the low bid rule the marketplace? 

While speaking with some people who give these low bids or accept these low bids they say it boils down to the customer. The customer sees the low number and has tunnel vision to the money they could save. I’ve argued over the years that there should be some comparison. Accepting low bid will get work that is unsatisfactory and the installers are uneducated in the product. While higher bids are educated, qualified installers who will stand behind the work.  Show them examples of what one produces versus the other. 

Vinyl flooring in a hospital where I was doing repairs and notified them that the entire floor was failing, less than a year after it was installed.

Over the years I’ve been on plenty jobs where the person who bid, left things out and we had to fill out Additional Work Authorizations in order to get the job done right. Was it left out intentionally to get the job? Or was it something that was actually missed? More often than not I tend to believe that these companies work on volume, and they need to get as many jobs as possible to turn a profit. So you bid as if there’s no prep, get the job and tell the customer numbers have to change. It’s either that or you go to a an uneducated installer who will install the floor regardless of how bad it is and how much prep needs to be done. The reality is the customer loses either way. They could have been more informed about the process, why it cost more and how much better it would look if they take something other than a low bid. While not all low bidders do a bad job, they hurt the market by not knowing the value in the skills they possess. On top of that by undercutting themselves, they’re unable to invest back into the business with necessary tooling. 

Top left: difference between an experienced vinyl installer on the left, and someone who didn’t have the right tooling on the right. Top right: what the seam should look like after being routed, unlike the first pictures. Bottom left: Grinding peaks out of the cut joints to become more flat and fluid for resilient flooring. Bottom right: putting underlayment throughout the building, the old installers layed over slats and it could be seen on top of the Carpet.

With the shortage of workers in the construction industry, why is is ok for things like this to happen? No one looks at the overhead in the flooring industry. Why? Is it because there’s no need for us to become licensed to do the work? The right installers educate themselves on the product and pride themselves on the knowledge of not only that product, but the installation procedures as well. While there are many that cut corners and ruin what the good guys are trying to build. Expenses that no one likes to pay that are necessary should spell the end to some of these companies. There’s far too many people who still consider their people “employees” but pay them on a 1099. When paid on a 1099 I feel like those people are less likely to file their taxes because more often than not they end up owing Uncle Sam a good chunk of cash. If they do file, they’re liable for ALL the taxes owed, instead of the company matching their portion. While some people look at it as making $20/hr cash, the reality of the situation is that they’re making more around $14/hr or so after the taxes that is owed. Unemployment isn’t included when you’re payed on a 1099, and the flooring industry is notorious for the “slow times”. 

Vacuums purchased to become compliant with the Silica Standard. 

Low bids, worker shortage, worker classification and stricter standards to follow. These all add up in an industry where we’ve struggled to raise prices for decades. Some old timers say that these are the prices that they used to get 15-20 years ago. It’s no wonder why we can’t find the right workers, there’s not enough money to hire them. Everyone needs to collectively raise their prices, because without the benefits that other companies can offer, people will keep looking to other industries other than construction. There needs to be a market where flooring companies can offer medical insurance and a retirement plan. The way the low bids are running the market, it’s hard to turn a profit with all the tooling and expenses, let alone being able to offer the benefits that employees look for. 

Feel free to comment below.

For direct questions or comments email daniel@preferredflooringmi.com