By: Tony Case
Proposed health care legislation could jeopardize
the safe harbor that allows newspapers to treat
their carriers as independent contractors sp.
PROPOSED HEALTH CARE legislation jeopardizes the safe harbor that allows newspapers to treat carriers as independent contractors, according to a senior manager with a top accounting firm.
“With the focus on the health insurance bill, this area will be reexamined,” Debe Doran of Deloitte & Touche warned International Newspaper Financial Managers members at their convention last month in Las Vegas.
Section 530 of the Internal Revenue Service Code protects previously audited companies from the reclassification of workers if the issue did not arise during the audits.
But the section will probably be revised, and some bills introduced in Congress call for repealing it altogether, instituting a new version and giving the IRS authority to define the term “employee,” Doran, who counts the Seattle Times among her clients, told the conferees.
Protection would still exist for those businesses that have been audited but would be limited to cases in which worker classification was actually examined. Under the current rule, a taxpayer obtains blanket acceptance of its worker classification if the treatment of workers was not reviewed on a previous audit.
The IRS would like to crack down on the proper assignment of laborer status, since it is estimated the agency loses $2.1 billion annually because of misclassification. Financial managers with newspapers and other businesses relying heavily on contract workers are understandably fidgety, as converting individuals from contractor to employee status represents a major expenditure.
A newspaper that is forced to reclassify an independent paper carrier as a full-fledged employee can count on having to provide the worker with health insurance, vacation and holiday pay and possibly retirement benefits, translating to a 40% cost increase to the company, Doran said.
Newspapers may be exempt from having to classify delivery people as employees if the individuals are under 18 years of age, and they sell papers to the public and retain the spread of the sale price over the purchase price.
But Doran noted, “This exception is really difficult because most people delivering newspapers are merely dropping the items at a place denoted by the publisher and are not making the actual sales.”
The IRS has determined that home delivery agents are not direct sellers since their primary function is delivery.
“The agents sell nothing,” Doran explained. “Delivery fees will be received whether or not there is any additional solicitation of newspapers. Workers are under a piecemeal pay system.”
The IRS and the courts have issued a list of factors to consider when classifying workers. They are only guidelines and companies may interpret the points differently in determining status.
“Ultimately,” Doran said, “the decision [about classification] is going to be based on control as it relates to the worker.”
Some of the considerations are particularly relevant to newspapers.
For example, does the employer inform the worker how, when and where a task is to be performed?
“This factor is typically present in newspaper delivery cases,” Doran observed. “The publisher typically advises the delivery people when to pick up the papers, where to deliver them, how to fold the papers and how to handle customer complaints. This usually indicates employee status.”
Is the worker’s role an integral part of the operation?
“Delivery systems are the essence of the newspaper industry because without them your newspapers would sit in warehouses,” Doran pointed out. Because delivery people are so vital, they must be considered employees.
And is the worker hiring, supervising and paying his own assistants and not performing the work directly? If so, this could indicate he or she is an independent contractor.
As for the classification of workers pertaining to the payment of federal employment taxes, newspaper rack and home delivery agents are considered common law employees because “the company basically exerts control over every aspect of the function,” Doran reported.
She explained that the agents take direction on when, how and where to deliver papers and the employer controls the amount of profits agents are able to earn and maintains control of complaint resolution, billing and collection.