Unemployment Insurance and Independant Contractor Status

[TooTallTom]

Things have shaken up at work, and I was informed that I would be made an independant contractor and have my hours cut to as needed (maybe ten per week?) on Jan 1. That was abruptly changed to start my IC status 10/17 (the decision was made about 10/31 or 11/01) and still cut my hours on 01/01/12.

I contacted DEED, and the woman I spoke with recommended that I apply for unemployment insurance immediately since any income while I'm self-employed won't count as far as calculating my weekly payment.

So, my question is: If I file for unemployment now, but I'm still essentially working full time, what is the impact as far as elegibility? Do they calculate the payment now, but just wait to start payment until I actually have my hours reduced? Should I just walk from my employment situation in order to preserve the payment level?

Obviously, I'm not looking for legal advice here. But I definitely don't want to be committing fraud, and I thought that perhaps someone had gone through a similar situation recently. Any other thoughts/ concerns/ ideas you might have are also welcome.

Thanks for the help.

[Jim Almquist]

I am not really sure what to tell you but just wanted to let you know what happened to me. I worked at reduced hours(30)for more than a year and then was laid off. That was what my unemployment went by and it reduced my payments by quite a bit. If you think you might be unemployed foe a while you should consider working the 10 hours a week because it will make your unemployment last for a longer period.

[TooTallTom]

Thanks for the heads up, Jim. I will work to the extent that I can, just for something to do if nothing else. And I'm trying to get a complete idea of the consequences before I make any decisions.

I tried calling the UI office this morning, but they've got a holiday.

[Jim Almquist]

Give them a call on Monday. I have always had got my ? answered and for the most part they are very helpful.

[TooTallTom]

That's my (limited) experience also. I actually talked to them yesterday, but I didn't think to ask this question when I had them on the horn.

[Down Deep]

If your are changed from a full-time employee to an IC then you are effectively terminated from your position being that your company has no obligation to you. An IC also has the option to work or not work. The company can demand the contracted work be done, but not anything else such as employees would be expected to do in a regular employee situation. I'm not expert, but you will be considered a terminated employee by your employer and should be elgible for benefits. The State office should be able to give you all the info you needd

[TooTallTom]

Thanks Down Deep.

I was pretty steamed about this whole thing yesterday, and was hoping to have some solid information today to act on. But it's probably a good thing that I have a weekend waiting period before I can get ahold of the folks at the State.

[Tom7227]

What trade or work do you do? It's been a long time since I was involved in answering the question and that was always in the workers' comp setting. There are all sorts of things that go into determining whether you're an IC or not in that arena. Just because someone says you're an IC doesn't necessarily make it so legally. I am curious to know how it pans out in today's society and if it's different in the UC realm. Sorry that I don't have any direct answer for you on the question you posed.

Tom

[TooTallTom]

I make maps when I'm doing what I went to school for, but most of my work is general office stuff. I have pretty strong doubts that I'm actually an independant contractor, but I don't really feel like it's worth making a stink at this point (for a couple of reasons).

I did read on the MN Unemployment Insurance HSOforum http://www.uimn.org/index.htm?WT.mc_id=UIMN3_LeftNavHP that they will determine IC status rather than just taking the employer's classification at face value. I'm pretty confident that they'd consider me to be an employee rather than an IC.

No sweat about not having any direct answer, I do appreciate the post just the same. I posted basically just to see if someone happened to have the answer to the question, rather than having to wait until Monday to find out. I'll post up here when I get a response from the office.

[Down Deep]

Employer Handbook: Covered / Non-Covered Employment

Independent Contractors

Reference: Minnesota Law, §3315.0555 and §268.035 Subd. 25b

Proper classification of workers can be a complex task for any business. The Minnesota Unemployment Insurance (UI) Program reserves the right to determine whether services performed by a worker constitute employment.

Independent contractors are common in certain industries, construction being the most familiar example. However, it is not unusual to find full time clerical workers, janitors, managers, and nurses, as well as employees who are performing services on a part time, temporary or probationary basis in a variety of job classifications being misclassified as independent contractors. The following paragraphs summarize the key elements involved in determining whether a worker is an employee or an independent contractor.

Common Law Factors

Minnesota state agencies use a common law factor analysis similar to the Internal Revenue Service to determine the status of a worker. Minnesota’s common law factors have been defined by the Minnesota court system. Of the twenty factors defined by the courts, the five factors that carry the most "weight" are:

Control. Does the firm or does the worker control the means and manner in which the services are performed?

Discharge. Can either party sue for breach of contract or can the firm or worker terminate at will without incurring any legal liability?

Payment. Does the firm or the worker dictate the value placed on these services? Is the worker paid by the job or in a regular and routine manner?

Investment. Does the firm or does the worker furnish any car or truck; tools or equipment; and/or materials or supplies necessary to perform these services?

Premises. Does the firm or does the worker control the premises where these services are performed?

Essential Characteristics of Employment

The firm has the right to control the means and manner in which the services are performed.

The firm has the right to discharge the worker without incurring legal liability.

The worker is paid in a regular and routine manner for services performed.

The firm furnishes the worker with:

Company car or truck,

Tools or equipment, or

Materials or supplies.

The firm controls the premises where services are performed.

Essential Characteristics of Independence

The firm's only concern is the end result.

The firm and worker are in a binding contract, where failure to complete services is a breach of contract in which a legal remedy may be pursued by either party.

The worker is paid by the job, on a bid basis, by percentage completion, etc.

The worker furnishes all tools, equipment, materials and supplies necessary to complete the work.

The worker has substantial investment in the tools and equipment used to perform the services.

The worker makes his or her services available to the public on a continuing basis.

Unique Treatment of Independent Contractors in the Construction Industry

Reference: Minnesota Department of Labor & Industry Law, §181.723

Legislation passed in 2007 requires that, effective Jan. 1, 2009, certain individuals who wish to work as independent contractors in the construction industry in Minnesota must apply for and be granted an "independent contractor exemption certificate" from the Department of Labor and Industry. Refer to the Department of Labor and Industry Web site for details www.dli.mn.gov/CCLD/ICEC.asp

A worker doing commercial or residential building construction or improvement, in the public or private sector, performing services in the course of the trade, business, profession, or occupation of the employer, is considered an employee and not an "independent contractor" unless the worker meets all the following conditions:

Maintains a separate business with the independent contractor's own office, equipment, materials, and other facilities,

Holds or has applied for a federal employer identification number or has filed business or self-employment income tax returns with the federal Internal Revenue Service based on that work or service in the previous year,

Operates under contracts to perform specific services or work for specific amounts of money under which the independent contractor controls the means of performing the services or work,

Incurs the main expenses related to the service or work that the independent contractor performs under contract,

Is responsible for the satisfactory completion of work or services that the independent contractor contracts to perform and is liable for a failure to complete the work or service,

Receives compensation for work or service performed under a contract on a commission or per job or competitive bid basis and not on any other basis,

May realize a profit or suffer a loss under contracts to perform work or service,

Has continuing or recurring business liabilities or obligations, and

The success or failure of the independent contractor's business depends on the relationship of business receipts to expenditures.

For additional information about independent contractors, contact:

MN Unemployment Insurance Program

651-296-6141 | www.uimn.org

Internal Revenue Service

1-800-829-1040 | www.irs.gov

MN Department of Labor & Industry

651-284-5005 | 1-800-342-5354 | www.dli.mn.gov

MN Department of Revenue

651-282-9999 | www.taxes.state.mn.us

[TooTallTom]

I spoke with a man named Phil at the unemployment office yesterday. He told me that I should file for unemployment now if I anticipate being out of work, even if I don't need to collect it right away. The level of payment will be determined when I file (not when I collect), and I should report any income that I make as I make it. Income does reduce the amount of the payment made, but doesn't lower the base payment. (Basically, If I would normally get a payment of $500 but made $50 last week, I get paid $450 this week, but I'm still eligible for $500 next week.) Essentially, I'd just be making my account go inactive by continuing to work full time, and when I need to collect unemployment I can start to do so (with a payment level calculated when I apply).

Also, I'm getting back into grad school after a long inactive period, and Phil told me that people on unemployment need to be looking for (and hopefully getting ) work. Full time students are pretty much ineligible, but the UI office takes into account the amount of time spent in the classroom when considering eligibility. So, since I will only be tying up a couple of loose ends and getting my degree, I should still qualify for payments. (That's another source of stress/ worry removed.)

[Down Deep]

One door closes and another opens. You just have to walk through it. Good Luck!

[Tom7227]

I'm sorry but there's several things about this setup that offends me.

First is the idea that an employer can arbitrarily declare someone an independent contractor. The amount of cost shifting that occurs is incredible. Income tax issues, social security, unemployment comp, worker's comp and probably more. Of course in today's economy who can afford to challenge such a move? A $10 job is better than no job.

Second is the fact that a person in this circumstance can get unemployment. I don't begrudge the worker a bit of income, what I do object to is the apparent acceptance of this and the subsidization of the employer's practice by the state.

[TooTallTom]

I agree whole-heartedly.

I'm probably less happy with this situation than you are. But, you hit the nail on the head: I need to pay the bills like everyone else (that I know, at any rate). So, I keep my mouth shut and a smile on my face and do my job just like I have been doing it.

I don't think you meant to imply that it's somehow the fault of the employee that the State is out when a "contractor" files for unemployment in a situation like this one. As stated above, I haven't got much choice in employment at this point. (I am working on that, though.) I'd like to see the State be able to re-coup any loss from the employer in a situation like this.

[Down Deep]

I what I do object to is the apparent acceptance of this and the subsidization of the employer's practice by the state.

No surprise to me. Look who is in control for the MN Legislature. The majority party makes no attempt to hide their anti workplace and worker protections positions. Its what the majority of voting citizens of MN want because they just elected the legislative majorities. If Dayton hadn't made it in by a very narrow margin or it would have been "game on" for the next 4 years. Watch the presidential candidate debates and they never miss an opportunity to put the boots to the American middle-class worker.

[Tom7227]

TooTall -

I was not intending to be critical of the employee at all in taking advantage of every avenue available to keep things going. I just think it is outrageous that an employer can shift all these costs to the employee and unemployment comp with a mere letter and get away with it.

If you don't mind could you give us an idea of the difference between what you made as an employee and what you're going to end up with as an IC? I've got to think that it's somewhere close to a 25-30% decrease in income.

From a broader perspective I wonder why the Department of Labor and Industry or the unemployment comp people don't take this on. If there isn't a challenge to a business doing this then I would expect more and more companies to do it.

Of course I also didn't think I would see the day where the Minneapolis paper would have an editorial with the headline "Take this job and ... be glad you have it" when commenting on the Target employee who is raising the issue of Thanksgiving hours.

[TooTallTom]

No harm done.

I agree that it is outrageous to be able to shift that burden from the employer onto the State and the employee. (Or should I say "independant contractor"? ) One heartening thing I've discovered in this whole process is that the State will make the determination as to who is actually an independant contractor and who is an employee, at least as far as wages eligible for UI purposes are concerned.

I didn't make all that much to begin with, I'm guessing that there's probably about a 10% difference in income between employee and IC status. I had no paid vacation and no benefits, so my particular number is probably on the low side. At the time I took this one I was of the opinion that any job is better than no job (That's how I was raised.) but now I think that mentality can be counter-productive. Plus, the job was a fairly good fit with grad school. I just let inertia keep me here for longer than I should have.

I haven't looked too hard into it, so it might be there, but it would be good if there was some kind of reporting mechanism (and protection for the reporters) in place. In my particular case, it would be very obvious who did the reporting (My boss would know it wasn't her...) but my case is certainly not universal. And I'd also like to see some kind of accountability to the employer in instances like this one. As you've mentioned, there's a pretty big burden shifted onto the State due to employers essentially gaming the system. I suppose one could make the argument that, in the face of the increased burden, some employers simply wouldn't hire additional employees. That's certainly something to consider, but I still think employers should not be allowed to shift the burden to the State and the employee with no repurcussions.

Don't even get me started on the black Friday bleed into Thanksgiving. That really aggravates me.