In Minnesota, as in most states, it’s common for
general contractors to “1099” their workers —
to misclassify them, in other words, as independent
contractors. How common? A 2007 investigation by the
state’s Office of the Legislative Auditor estimated that
1 in 7 employers engaged in this practice; in the construction
industry, the ratio was closer to 1 in 3. Now, however, that
ratio is bound to change, thanks to a new state law that
requires contractors to treat all individuals and sole
proprietors as employees unless they’ve received an
exemption from the state.
Tough requirements. Under the new
law — Statute 181.723, which took effect January 1
— anyone who wants to work as an independent contractor
in Minnesota’s residential or commercial construction
industry must first obtain an Independent Contractor Exemption
Certificate (ICEC) from the state’s Department of Labor
and Industry. In addition to paying a $150 fee, applicants must
provide documentation proving that they do the following: file
appropriate tax; perform specific services; incur expenses;
assume liability; stay off the contractor’s payroll;
assume the risk of realizing a loss; have liabilities; and
track revenue and expenses.
Sole proprietorships only. The law
does not apply to individuals in construction sales,
landscaping, or construction cleanup, or to business entities
like LLCs, C or S corporations, or partnerships. It applies
only to the large percentage of remodelers and builders who are
sole proprietorships and one-man shops.
Both the worker or sub being hired and the contractor doing
the hiring are responsible for compliance. Contractors must
verify the status of their subs before jobs begin, update their
records periodically to ensure that subs haven’t let
their exempt status lapse, and maintain ICEC records for five
years after the initial hiring date. Failure to comply can
result in fines of up to $5,000 for the sub and the
hiring contractor, as well as liability for all withholding and
payroll taxes (including penalties and interest) if the sub is
later reclassified as an employee.
Sea change. The rule represents a
fairly dramatic change in how state governments are approaching
this issue. Until recently it’s been customary not only
in Minnesota but throughout much of the country for contractors
to rely on the IRS’s longstanding 20-factor
“right-to-control test” for determining independent
contractor vs. employee status. That some subjectivity would be
applied to the interpretation of those rules was a given. The
incentive for a contractor to take advantage of any wiggle
room, of course, is considerable: Any accountant will tell you
that hiring an employee costs 25 percent to 30 percent more
than hiring a subcontractor to do the same work, once all of
the employee’s costs are factored in (Social Security,
workers’ comp, liability insurance, benefits).
No more wiggle room. But now federal
and state officials everywhere — Minnesota is by no means
unique — are cracking down on independent-contractor
misclassifications. Increased revenue in the form of additional
taxes, fees, and fines no doubt accounts for some of the
heightened interest, but the crackdowns are also receiving
solid support from workers’ rights groups and unions,
says the National Employment Law Project
(nelp.org), a private
research and advocacy organization. Bills addressing
independent-contractor misclassification have passed in New
Jersey, Illinois, Washington, and Colorado — and several
other states are working on similar measures.
At the federal level, notes NELP co-director Catherine
Ruckelshaus, both the House and the Senate have introduced
bills that address the issue. Meanwhile, the IRS, the
Department of Labor, and representatives of more than 30 states
have developed the Questionable Employment Tax Practices
Initiative to combat various other schemes for avoiding federal
and state employment taxes. — Andrew Wormer
Airtight Stucco Home
Survives Destructive Blaze
It started out as a simple bonfire at the Teahouse, a
popular hangout for Montecito, Calif., teenagers. But then
Santa Ana winds — gusting to 70 mph — fanned embers
from the not-quite-extinguished fire into flames that found
ready fuel in the area’s dry brush and oil-rich
eucalyptus trees. By the time last November’s California
Tea Fire was finally contained, it had burned through almost
2,000 acres and destroyed 230 houses in Santa Barbara
County.
One residence the fire didn’t destroy was a house built
in 2006 by Santa Barbara contractor Dennis Allen, a long-time
proponent of sustainable design. Built in a wildland-urban
interface fire area, the house has numerous fire-resistant
features required by local code and the California Building
Code, such as a Class A roof — in this case a combination
of standing-seam metal and standard BUR roofing — and
ignition-resistant eaves and wall cladding.
But Allen also attributes the home’s survival to its
many green features. Its super insulation — R-40
cellulose in the 12-inch-thick walls and R-60 in its ceilings
— helped it withstand outside temperatures estimated to
have exceeded 1,000°F. Programmable thermostats
inside the house measured a maximum indoor temperature of only
84°F during the fire; a sprinkler system would have
activated if interior temperatures had reached
140°F.
In addition, the home is heated with a simple radiant slab and
has no crawlspace vents to introduce burning embers into the
structure and no hvac ductwork to spread them around. Nor does
it have an air conditioner (or the accompanying ductwork); in
this region, high insulation levels make such equipment
unnecessary. And even though permitting the unvented roof was
“a pain” at the time (the IRC now has
“hot” roof details), Allen notes that roof and
soffit vents are a common point of entry for burning
embers.
Super-insulated walls and ceilings and unvented
metal-wrapped eaves (shown in the “before” photo,
top) helped keep this home from igniting during
California’s Tea Fire, which left the surrounding
landscape scorched (bottom).
Allen points out that small details — such as a
smooth-trowel stucco finish that allowed the wall to shed
burning embers easily — played a role in the home’s
survival as well. So did a bit of luck. “All of the doors
except for one leading to the garage had metal
thresholds,” he says. “That wooden threshold had
marks from burning embers that landed on it. If it had ignited,
the house could have ended up like all of the others.”
— Andrew Wormer