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Think Twice Before You Use Subs or 1099’s Who Can’t Speak English

Posted by Shawn McCadden on Wed, Feb 24,2016 @ 01:10 PM

Think Twice Before You Use Subs or 1099’s Who Can’t Speak English; Here’s 2 Simple Reasons Why

Subs who don't speak EnglishThe government has recently been cracking down on improper classification of workers as subcontractors.  Understanding the difference, at least in the eyes of the government, can help a remodeler avoid challenges as well as the fines and penalties that come with misclassification.  I recently became aware of an additional consideration as a result of reading an article in Remodeling magazine titled “Se Habla Ingles + No = No Deal? Get Real!”   After reading the article, but particularly the reader comments, that new consideration jumped out at me.  Using subcontractors and or 1099 workers who do not speak English can put your remodeling business at risk in at least two costly ways.

Two simple ways the language barrier can put your remodeling or construction business at risk

#1: Customer service can be compromised leading to loss of repeat work and referrals.  

Let’s face facts here; if a worker cannot speak English there will definitely be communication challenges.  This is clearly demonstrated by the comment left at the article I mentioned above.  The comment was by Perry, an actual consumer who personally experienced the challenges and disappointments caused both by the workers who could not adequately understand English as well as the business that hired them:

“It's difficult to quantify or fully explain in this comment the magnitude of problems we've had on our current job, but approximately half the problems can be traced directly back to a communication problem with the workers at the site.  I witnessed our job supervisor explaining what was needed (in as good a Spanish as he could muster), the worker acknowledging his understanding, and hours later when the completed work is inspected, it's clear the worker did not understand exactly what was needed.  This has happened repeatedly, with some of the mistakes far more costly than others.”


Stressed remodeling customersWhen a customer experiences what Perry speaks to its not likely the contractor performing the work will ever get future business or referrals from the disappointed customer.  Remember, quality is not just determined by the final outcome.  Quality is also determined by the experience the consumer has as the product is being delivered.


#2: Risk of the government deciding they are employees

Contractors should be using fixed scope contracts with subcontractors.  Subcontractor agreements should detail the work to be completed, the expected outcome, when it has to be completed and include a fixed price for the services performed.  If a subcontractor and or his/her workers cannot read a written work order due to a language barrier someone outside the subcontractor’s business will have to explain what is to be done and how it is to be done to the subcontractor.   And in the absence of the subcontractor at the jobsite someone will need to explain and direct that sub’s employees.    This type of relationship with a sub and or the sub’s employees demonstrates control by the business that hired the subcontractor.

Independent contractor oremployee questions
The IRS will consider a worker to be an employee unless independent contractor status is clearly indicated by the relationship between the worker and a remodeling business.   The way the IRS sees it an employee is a worker who performs services at the direction of an employer.  Subcontractors are considered to be in business for themselves and work under their own direction.  So simply stated anyone who performs services for a remodeler is an employee if the remodeler can and or does control what will be done and how it will be done.  Explaining things to a worker and orally directing how and in what order to perform their work therefore makes the worker an employee.

The fines and penalties for misclassification can ruin your business

As I pointed out in a previous blog post the determination by the government of misclassification of workers can be caused by many reasons.  Plus when it happens the government assumes you to be guilty until you prove your innocence.   If you cannot create a written subcontractor agreement, in the Penalties for construction worker misclassificationlanguage of the subs you work with which details the scope of work they are to perform independently, you and or your business will be forced to orally direct the work of the subs.  Once you do that the government no longer classifies them as subs, but rather as employees.  That is therefore misclassification.   According to an article at workcompcentral, in Tennessee a company by the name of Aguilar Carpentry was caught misclassifying workers and was fined $73,000In another article posted to a CT contractor was fined $20,240 for misclassification. Those fine amounts would put most remodelers out of business.


Still unsure about your relationship with sub? Here are three possible options

For a quick answer perhaps just take the quiz Remodeling Magazine recently offered titled:  "Take the Quiz: Are You Misclassifying Your Subcontractor?"  Answer the questions honestly and then see if the government would call them subs or employees.  

see all ma csl class dtaes and locationsIf you want help from the IRS and you have a lot of time to wait you can use IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.   The completed form can be filed with the IRS by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status.  Unfortunately it can take at least six months to get a determination.  Additionally, often times because determining factors used by the government are not always objective, the determination may not binding.



Topics: New Business Realities, Legal Related, Subcontractor Considerations, Government Regulations, Definitions

Is Using 1099 Construction Workers Worth The Risk?

Posted by Shawn McCadden on Fri, Sep 25,2015 @ 08:03 AM

Is It Worth It To Risk Using 1099 Workers To Avoid Employee Responsibilities?

1099 construction workersMany contractors are using what are refer to as 1099 workers to avoid employee and payroll related administrative responsibilities and financial costs.  Some use this tactic to reduce their costs to help win bids and or make more money. If you never get caught you may feel or believe it was worth it. On the other hand if you get caught, whether you knew what you were doing was illegal or you really believed what you were doing was OK, the financial and litigation related costs can kill your business. The chance of this happening has dramatically increased in certain areas of the country because Washington is offering money to states to help them do so. Read on to find out about what is already happening in Virginia.

In a well written article written by Courtney Malveaux of Thompson McMullan PC, Courtney shares a scary story where a GC jobsite is inspected by VA’s version of OSHA and makes and on-site determination that certain “Independent Contractors” were actually employees, triggering the automatic loss of any ability to negotiate violation penalty reductions. The story gets much scarier as you read on; I suggest you read the whole article.


“Under the new policy, if the inspector declares that your contractors should be considered employees, watch out.  You’re paying full freight on each penalty, without exception.  Your only recourse would be legal action.” Courtney Malveaux

Guilty until proven innocent

The part I found most scary in the story was that the contractors who take this risk, for whatever reason they justify doing so, are automatically assumed to be guilty by the inspectors.   If that happens to you it means you are guilty until proven innocent, at your own expense to try to do so. And, even if you eventually win your legal battle, you are not entitled to receive any damages for your challenges. So your legal fees cannot be recouped.

Risk of using 1099 construction workersThat means you have to pay up on any fines, at their full rate (anywhere from $7K to 70K per violation) right away. Then you have to decide if you are willing to wait for your legal case to make it through a legal system sponsored by the same entity that is accusing your business.


Collateral damages may be unavoidable

From what I have witness I know the story can go even further than explained in the article. For example if the 1099’s are deemed to be employees you may also become responsible for all employment related taxes on all the money you have paid to them to date, plus fines of course. The same may happen with Workers Compensation and General Liability insurance coverage. Again the likelihood of these things happening has also become more likely. For example in Massachusetts several different state departments are participating in a memorandum of understanding, committing to refer observed violators discovered by each department to the other departments. In a 2012 article I reported on how OSHA and EPA have done the same regarding RRP Inspections.


1099 or employee

The Bottom Line

As a business owner only you can decide the level of risk you are willing to take on by avoiding employment responsibilities. I recognize by doing so you may be saving your business and your customers money. At the same time by doing so perhaps both of you are preventing a worker, or many workers, from having the employment rights and benefits your customers expect and even demand at their jobs. Some know they are doing it. Some, I hope, just found out.


Topics: New Business Realities, Legal Related, Business Management, Production Considerations, OSHA Considerations, Subcontractor Considerations, Government Regulations, OSHA - EPA Challenges, Workers Compensation, Taxes

Great Way Contractors Can Make Sure Payroll Taxes Get Paid On Time

Posted by Shawn McCadden on Mon, May 18,2015 @ 06:00 AM

Great Way Contractors Can Make Sure Payroll Taxes Get Paid On Time

Payroll tax payment reminderPayroll is complicated enough without having to worry about when to make payments and when to file which form to which government entity. I have many clients who are comfortable creating paychecks, but are nervous about missing payroll tax payments or filing forms late. A client recently asked if I couldn’t find a simple way to have reminders that would prompt him to do whatever had to be done. To help I created a simple “in your face” payroll reminder.

Since he uses QuickBooks, my first thought was to use the Reminders or To Do functions. However, he leaves his computer running and QuickBooks open, and these only pop up when you open the company file. Then I considered putting an Excel spreadsheet or Word document on his laptop desktop so he could just open it up. But that required him to make a habit of opening it up to see if anything was due. As we stared at his laptop desktop, he said, “What I really want is something right here” (gesturing to the screen). And that provided the solution!


Here's what I did, you can easily do it yourself

I created a calendar in Excel, including all the various due dates for payments and forms, being careful to make the proportions similar to the laptop display proportions. I also included dates for making federal and state estimated income tax payments. The next step was to convert to a graphic file format. This can be done easily by simply printing and then scanning the calendar.


Simple Payroll Tax payment reminder 

How contracors can make payroll tax payments on timeHow to get it on your desktop

The final step is to save the scanned image to a convenient location, and then right-click the file and choose Set as Desktop background.

Now, whenever you turn on your computer, or minimize your work, the list of due dates will be in your face!



Guest Blogger: Melanie Hodgdon is a Certified QuickBooks ProAdvisor who has been providing financial analysis and QuickBooks training for contractors since 1994. She’s the co-author of A Simple Guide to Turning a Profit as a Contractor.   


Topics: Business Financials, Financial Related Topics, Government Regulations, QuickBooks Related, Taxes

Update On The Lowes 2X4 Story And Controversy

Posted by Shawn McCadden on Tue, Sep 16,2014 @ 06:00 AM

Update On The Lowes 2X4 Story and Controversy

Lowes 2x4 story update


Last week on September 9, 2014 I posted a blog titled California Judge May Have Created Huge Challenges for Contractors.  At that time the information reported indicated that a California Superior Court judge by the name of Paul M. Haakenson had ordered Lowes to pay $1.6 million dollars for selling 2x4’s that are not really 2” x 4”.   The story and my blog caught quite a bit of attention in the construction and building materials industries.   Additional information has now surfaced.


Some clarifications

I had originally found the information in an article posted to ProSales magazine, a publication for professional building products dealers.  Remodeling magazine recently posted an update about the story, offering some clarifications provided by the West Coast Lumber & Building Material Association (WCLBMA).  In the article WCLBMA clarified the $1.6 million final judgment Lowe's reached with the State of California appears, at least in part, to involve labeling certain non-wood products as wood as well as the incorrect labeling of certain other lumber products.

In an August 27th press release by Marin County, the county where a local weights and measures division visited one of Lowes’ retail store locations, said the district attorneys' civil enforcement action claimed that "Lowe’s stores throughout the state unlawfully advertised structural dimensional building products for sale and those advertisements stated, contained, and described product dimensions that were not the actual product dimensions".  The press release also states; “The judgment requires Lowe's to immediately remove products from sale or correct false, misleading, deceptive or inaccurate product descriptions when Lowe's knows or should know that the product descriptions are untrue or misleading”.


Don't blame the source

Lowes 2x4 challengesIt would appear that in the original interview ProSales had with Lowes about the story the fact that Lowes was selling 2x4’s that did not meet the standard accepted size of 1 ½” x 3 ½” was a detail left out of the interview.  I say this with a high level of confidence because I find ProSales to be consistently accurate and the magazine editor, Craig Webb, does a great job vetting the information being published. 


Do contractors still have plenty of reason for concern?

On the other hand I and many of the commenters at my blog are still concerned about the ruling details Lowes and other retailers must now follow.   According to another ProSales article Judge Haakenson’s order lists the following three main rules for the retailer to follow going forward:

  • "Common descriptions" must be followed by actual dimensions and labeled as such. For instance, a 2x4 must be followed with a disclaimer that the wood is actually 1.5-inches by 3.5-inches and include a phrase equal or similar to "actual dimensions."
  • "Popular or common product description," like the word 2x4, must be "clearly described as 'popular name,' 'popular description,' or 'commonly called.'"
  • Dimension descriptions are required to use the "inch-pound unit", meaning they must include abbreviations such as "in., ft., or yd.," and can't use symbols like ' or '' to denote measurements.


Regulations affecting contractorsThe concern I am expressing is  if these rules apply to retailers will they also apply to contractors? If they do, or eventually will, contractors in California and the rest of the country may also run into challenges not only with the government, but also with their customers.   Perhaps trade associations such as NAHB and NARI should proactively seek out the answer to this question to help guide and protect their members and the rest of the construction industry.   The RRP Rule came about because our industry didn’t proactively deal with the hazards of lead during construction on its own before the government stepped in and dictated regulations many do not agree with.  


Perhaps this case against Lowes can serve as a warning and the industry can get out ahead of what the government could require of contractors.  If these are or do become requirements contractors must follow perhaps the trade associations and industry publications can inform contractors before they experience costly challenges that could put them out of business.


What are your thoughts? 

Are you concerned enough to ask your trade association to look into this? 



Click here for an update on this story




Topics: LBM Related Topics, LBM Dealer Topics, Legal Related, Government Regulations, Shawn's Predictions

CA Judge May Have Created Huge Challenges For Contractors

Posted by Shawn McCadden on Tue, Sep 09,2014 @ 06:00 AM

California Judge May Have Created Huge Challenges For Contractors

Lowes pays fine for selling 2x4s


I couldn’t believe it when I read it.   A California Superior Court judge by the name of Paul M. Haakenson  ordered Lowes to pay $1.6 million dollars for selling 2x4’s that are not really 2” x 4”.  

Yes, your read that right! 

According to the Marin County, CA district attorney's office Lowes "unlawfully advertised structural dimensional building products for sale."  To put it a different way, prosecutors say that if products, including building products like a 2x4 or 2x8, aren’t actually 2” x 4” or 2” x 8” when purchased, consumers are being mislead.

Wall framing crewIt would appear to anyone who knows and understands how lumber is graded and sold that the state of California is looking for ways to fine legitimate businesses, even if those businesses are conducting business using traditional and industry accepted methods and terminology. 

According to a report by Tim Regan of ProSales magazine, Amanda Manna, a spokesperson for Lowe's, told ProSales by phone that this case began when representatives from a local weights and measures division visited one of the company's retail store locations and "expressed concerns" about product measurements.

Apparently even the district attorney got involved

According to the same ProSales article Marin County District Attorney Edward S. Berberian said "Consumers should expect when making product purchases that retailers are providing accurate information.  Especially when misinformation could adversely affect building projects that more often than not rely on precise measurements."

As part of the judgment Lowes was ordered to pay $1.47 million in civil penalties and costs of the investigation, as well as an additional $150,000 to fund further consumer protection-related activities.  Lowes also will now display the actual dimensions next to "commonly used measurements" in product descriptions and on in-store signage in its stores across California.


How and why this may affect contractors

Lowes may be able to afford to pay these fines and make changes to make the government go away, but what about the typical small business contractor?  Will the state of California go after contractors in the same way?  Does this judgment create awareness and open the door for more consumer law suits against contractors?  Here are a few questions to think about:

  • Questions for contractorsWill you have to describe the actual dimensions of every framing product you specify in your next proposal, including the actual thickness of sheet goods?
  • Should architects and designers now provide similar information when they create plans, just to be safe?
  • How much can manufactured lumber vary from its actual published size; will 1/16” over or under  be OK, but 1/8” or more is not?
  • What if the lumber is actually larger than the size you specified because it is wet?
  • If you contract to build an 8’ by 12’ deck will you have to explain in your contract why it will be a few inches smaller than that, each way?   If you don’t, in California will your client be able to sue you because the deck wasn’t exactly 8’ X 12’?


The Bigger Picture

Some of you might say, well that’s in California; it doesn’t or won’t affect me.  

I say you are wrong. 

If we as an industry let even one government agency get away with such stupidity and allow them to use regulations in ways they were not intended, we are all opening up the door for more special interest groups and government agencies to regulate us out of being able to run profitable businesses. 


Think I’m being a fear monger? 

How about this additional detail about the settlement.  According to another report by ProSales California now requires Lowes to use the "inch-pound unit," meaning they must include abbreviations such as "in., ft., or yd.," and can't use symbols like ' or '' to denote measurements. 

Better start editing your stock proposals and or project specifications!


Topics: New Business Realities, LBM Related Topics, Government Regulations

EPA Announces Plan To Inspect Contractors For RRP Compliance

Posted by Shawn McCadden on Thu, Apr 10,2014 @ 06:00 AM

EPA Announces Plan To Inspect Contractors For RRP Compliance

EPA announces RRP inspections in New Haven CT


The Boston EPA Office, in an effort to improve compliance with laws that protect children from lead paint poisoning, has announced it will be sending letters to approximately 200 home renovation and painting contractors, property management companies and landlords in and around New Haven, Conn. announcing a compliance assistance and enforcement initiative.  According to an April 7, 2014 press release the EPA letter outlines steps EPA will be taking to increase compliance by these entities with the EPA RRP Rule.


EPA says they will offer compliance assistance

According to the press release the letter EPA is sending to New Haven-area contractors, landlords and property management companies invites these entities to an information session to be held at the New Haven Health Department office on April 16, 2014 from 3 to 6 pm where EPA says it will provide an overview of the RRP Rule requirements, and introduce an expedited settlement offer for one violation of the RRP Rule. It’s not clear from the press release what the settlement will be or what violations they are referring to. 

In addition to the information session, during April and May, EPA says it will offer compliance assistance on the RRP Rule to companies and the public in the New Haven area.   The press release did not offer any details on what type of compliance assistance would be offered.


WARNING: EPA also says they will also be inspecting to verify compliance

EPA RRP Inspections warningThe letter will also notify the contractors that EPA will be inspecting a number of them in June 2014.  According to the press release EPA lead inspectors will inspect numerous renovation, painting and property management companies in the New Haven area regarding their compliance with the RRP Rule. The inspections may be followed up with enforcement.

Besides increasing protection for children’s health, EPA says it aims to ensure a “level playing field” for individuals and companies that are already complying with the RRP Rule.  To extend its reach, EPA says it is coordinating with many agencies, including the New Haven Health Department and the Connecticut Department of Public Health on this initiative.


Why New Haven CT and who might be next?

EPA says it is doing this initiative in the New Haven area because public health records indicate that New Haven has one of the highest rates of childhood lead exposure in New England. 

So, will contractors be happy about this?

The RRP Rule has caused much controversy in the remodeling industry.  Some contractors want to see the rule go away altogether.  Others are OK with the rule and its purpose, but have complained that the lack of enforcement and the ineffective public outreach efforts to date have made it difficult to compete with business that do not comply; due to the additional costs related to rule compliance. 

EPA RRP Rule EnforcementTime will tell whether this intuitive will help improve compliance in any significant way and or really have any effect on leveling the playing field.   Either way it’s likely that EPA will use the findings and enforcement of this initiative to capture the attention of contractors in the New Haven area.  Contractors outside of CT may also want to consider that this may be a test program that could eventually be put in place in other areas of the country.

If anyone reading this receives one of the letters I hope you will share it with me so I can share it here at the Design/Builders Blog.


Topics: EPA RRP Rule Updates, EPA Announcements, Government Regulations, RRP Related

OSHA Visits Contractor 3 Times in 33 Days, Subs Don’t Want To Come Back

Posted by Shawn McCadden on Tue, Feb 11,2014 @ 06:00 AM

OSHA Visits Contractor 3 Times in 33 Days, Subs Don’t Want To Come Back

Mark Scott of Mark IV Builders

A remodeling contractor in Cabin John, MD was visited three different times by the same OSHA inspector within a 33 day period on a Washington DC project.  The fines come to a total of $8000.  However he was told if he is willing to pay up within 15 days, not put up a fight about the charges, and make the required corrective actions, our government will give him a 25% discount.  The citation letter he received from the OSHA inspector also let him know that information about the citation would be published on the internet at after 30 days.

Mark Scott, president of Mark IV Builders, told me he chalks it up to just another cost of doing business.   Fortunately for him his business is large enough to absorb such costs.  However it has put some fear into his employees as well as his sub contractors.  Both were found in violation of OSHA requirements when the inspector stopped by.  One sub, who was also cited for the same violations and fines, doesn’t want to come back to the job site, fearing additional visits and fines. 


All considered “serious violations” by OSHA, here are the violations as well as the fines for each:

  • OSHA Inspector visits contractor 3 timesOne employee was found using a table saw without using safety glasses.  This offense came with a $1200 fine.  The inspector noted the violation was corrected during inspection.
  • Another employee was working without a hard hat in an area where possible head injury could occur due to falling or flying objects.   This violation triggered a $1200 fine.  The inspector noted the violation was corrected during inspection.
  • Three sub contractor employees were each found to be using separate damaged extension cords.  Again, another $1200 fine.
  • A sub contractor was observed working more than 6' off the ground without proper fall protection in place, in two different areas at the job site.   This triggered a $2800 fine.
  • A sub contractor was standing on the top step of a 4’ step ladder.  This offence came with a $1600 fine.
  • Both employees and subs, while doing drywall installation, were found to be using a GFI wall outlet without a cover plate on it.   For some reason no fine was assessed for this violation.


What will the company do differently?

Unlike many remodeling businesses Mark IV has already embraced worker safety and OSHA requirements.   All company employees have the safety equipment needed to do their work as well as the required training to use it.  In fact Mark told me he worked with his insurance company to make sure he was in compliance and has several letters from them stating what an excellent job his company has done in regards to worker safety.     

I asked Mark what he plans to do differently now after having been written up and fined.  His answer was; “Not much.  My employees have the equipment and know what they should and should not be doing.  It’s part of playing the game of being in business”.   

One thing Mark says he will do is look into how his company and his employees should handle and manage future OSHA visits. 


What does Mark suggest to other contractors?

OSHA Targeting residential constructionMark shared that his first experience with OSHA was back in 1979 when working as a project supervisor. An OSHA inspector showed up at the job site with three books under his arm.   Mark said the inspector greeted him with; “You’re going to get a fine today.  I’ve got three books here and I’m sure I can find something in one of them”.  

In Mark’s opinion OSHA has no intention of proactively helping businesses comply.  He suggests taking advantage of what your insurance provider has to offer to help with worker safety and OSHA compliance.  In his experience most of the help offered has been free and can even help manage a contractor’s insurance costs. 

Check out this OSHA compliance checklist for contractors.

Topics: Worker Training, OSHA Considerations, Subcontractor Considerations, Opinions from Contractors, Government Regulations

Will Drones Be Watching and Servicing Contractors In The Near Future?

Posted by Shawn McCadden on Tue, Feb 04,2014 @ 06:00 AM

Will Drones Be Watching and Servicing Contractors In The Near Future?

Drones watching contracors



Drones may soon become part of everyday life for contractors.  Depending on their purpose, drones could be a contractor’s helpful friend or his worst nightmare.   If your business has something to hide there could be danger from up above.  If you need a quick delivery a drone may soon be the method of choice.  Either way, you might want to make sure you have your hardhat on, both to protect yourself from falling items and to avoid an OSHA violation.


If you think my imagination has run wild check out the video below.   For about $1200 bucks you can get a pretty easy to use drone that will communicate with your IPhone.   I watched it and it got me to thinking about how contractors and others may use drones in the near future.   I encourage you to watch it and imagine ways you could use one for your business.  After you watch it check out my short list of likely uses for contractors, the government and even the vendors you do business with.  



Here are a few ideas that came to me after watching the video

Ways contractors might use drones

  • Measuring the roof without pulling out a ladder.
  • Check the condition of the chimney flashing.
  • Jobsite fly around replaces the walk around to see how things are going.
  • Create bird’s eye view before, during and after videos or photos of your projects to use for marketing on your website.


Ways vendors might use drones

  • Will contractors use dronesFast delivery of that one joist hanger you’re missing so you can put the floor sheathing down and get the wall framing going
  • The local print shop delivers the three copies of the plan set you need to apply for that building permit this afternoon.
  • Your exterior products supplier sends a drone over your job site to measure the roof and then gets the materials ready for first delivery in the morning.


Here are a few ways the government might use drones to keep an eye on contractors.

  • OSHA inspector uses it at a large development project to scan the entire site for violations.  Site conditions are all recorded on video and individual clips of each offense in action are included as part of the violation notice the GC receives.
  • EPA can do RRP inspections at will.  The camera software in the drone has the ability to recognize ladders and the drone is programmed to only fly by homes built prior to 1978.
  • Your State DEP sets up their drones to fly by all DEP sites to make sure all water management requirements are in place and any land clearing work completed doesn’t exceed what was approved.


Predicting the future or pure fantasy?

how contractors will use drones in the futureI first came across this topic in a discussion posted to LinkedIn by Alec Caldwell.  One commenter said Caldwell was "fear mongering" and suggested he get a grip on his imagination.  I disagree and think the uses for drones will only be limited by our imagination or government regulation.   We’ll have to see which one wins out. 

Here is one example where the government used drones to help convict a North Dakota farmer, claimed to be the first case of its kind.  

How about you?  Is this science fiction or can you imagine other uses for drones that would help and or hinder contractors?



Topics: Technology for Remodelers, Fun Stuff, Future of the Remodeling Industry, Government Regulations, Shawn's Predictions

5 Examples How IRS Determines If a Construction Worker Is an Employee

Posted by Shawn McCadden on Tue, Jan 21,2014 @ 06:00 AM

5 Examples of How the IRS Determines If a Construction Worker Is an Employee

How does the IRS Determine If a Construction Worker Is an Employee


A good number of contractors are deciding not to hire employees as the economy and their workloads improve.  Instead, they plan to hire sub contractors to get the work done. I have talked with many of these contractors and the majority of the ones I spoke with are putting themselves at significant risks.  If you don’t know how to properly differentiate between an employee and an independent contractor you better find out.  If the IRS or another government agency decides a worker is an employee, not a sub contractor, it could cost you and your business big time.

Below are some examples of how the IRS would determine whether a worker is an employee or an independent worker. This information comes from a 2014 IRS Publication titled “Employer’s Supplemental Tax Guide”.

I hope these examples will help you properly classify your workers and help you avoid unneeded fines and sleepless nights.


Example 1:

Jerry Jones has an agreement with Wilma White to supervise the remodeling of her house.

The details: She did not advance funds to help him carry on the work. She makes direct payments to the suppliers for all necessary materials. She carries liability and workers' compensation insurance covering Jerry and others that he engaged to assist him. She pays them an hourly rate and exercises almost constant supervision over the work. Jerry is not free to transfer his assistants to other jobs. He may not work on other jobs while working for Wilma. He assumes no responsibility to complete the work and will incur no contractual liability if he fails to do so. He and his assistants perform personal services for hourly wages.

IRS Says… 

Jerry Jones and his assistants are employees of Wilma White.


Example 2:

Milton Manning, an experienced tile setter, orally agreed with a corporation to perform full-time services at construction sites.

What is an Independant ContractorThe details: He uses his own tools and performs services in the order designated by the corporation and according to its specifications. The corporation supplies all materials, makes frequent inspections of his work, pays him on a piecework basis, and carries workers' compensation insurance on him. He does not have a place of business or hold himself out to perform similar services for others. Either party can end the services at any time.

IRS Says… 

Milton Manning is an employee of the corporation.


Example 3.

Wallace Black agreed with the Sawdust Co. to supply the construction labor for a group of houses.

The details: The Company agreed to pay all construction costs. However, he supplies all the tools and equipment. He performs personal services as a carpenter and mechanic for an hourly wage. He also acts as superintendent and foreman and engages other individuals to assist him. The company has the right to select, approve, or discharge any helper. A company representative makes frequent inspections of the construction site. When a house is finished, Wallace is paid a certain percentage of its costs. He is not responsible for faults, defects of construction, or wasteful operation. At the end of each week, he presents the company with a statement of the amount that he has spent, including the payroll. The company gives him a check for that amount from which he pays the assistants, although he is not personally liable for their wages.

IRS Says… 

Wallace Black and his assistants are employees of the Sawdust Co.


Example 4.

Bill Plum contracted with Elm Corporation to complete the roofing on a housing complex. 

IRS Independent Contractor ruleThe details: A signed contract established a flat amount for the services rendered by Bill Plum. Bill is a licensed roofer and carries workers' compensation and liability insurance under the business name, Plum Roofing. He hires his own roofers who are treated as employees for federal employment tax purposes. If there is a problem with the roofing work, Plum Roofing is responsible for paying for any repairs.

IRS Says… 

Bill Plum, doing business as Plum Roofing, is an independent contractor.



Example 5.

Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours.

The details: She is to receive $1,280 every 2 weeks for the next 10 weeks. This is not considered payment by the hour. Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements.

IRS Says… 

Vera is an independent contractor.


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Current State of the RRP Rule; An EPA Performance Report Card

Posted by Shawn McCadden on Thu, Nov 21,2013 @ 06:00 AM

Current State of the RRP Rule; An EPA performance Report Card

EPA RRP Report Card



Back in April of 2012 I published a blog where I offered a report card on how I thought the EPA was doing regarding the RRP Rule.  In this blog I offer an update on the RRP Rule as of October 2013.   I had prepared and presented this information at the Lead & Healthy Housing Northeast Regional ConferenceLead & Healthy Housing Northeast Regional Conference on October 9, 2013 in Mystic, CT.  


Overall the performance of the EPA has continued to be dismal.  

As you will see from the information I provide below, due to the lack of accountability and the poor business practices of EPA, the purpose of the rule, to protect children from lead poisoning due to renovations, has definitely been compromised.   Many, including me, are also of the opinion that due to EPA's handling of the rule more children are at risk of lead poisoning. 

RRP Rule performanceI hope by sharing this information, those who are in favor of protecting children from the dangers of lead due to renovations will make it a strategic priority to hold EPA accountable to rethink the practicality of the rule.  Hold them accountable to establishing and using objective metrics that measure EPA and the rule's performance.  And, most importantly, to make sure if performance objectives are not achieved those responsible for those objectives will be identified and removed from their positions.   The health and well-being of our nation's children are too important to tolerate the kind of performance the EPA has demonstrated to date.  If you agree, make sure you speak to your political representatives and get their commitment to hold EPA accountable.


The following is my summary of the state of the RRP Rule and EPA's performance to date, separated by subject categories:


Subject: Outreach about the Rule:

  • On April 1, 2012 I gave the EPA a “D”, now I give them an “F”
  • EPA has claimed to have done extensive outreach to consumers and the regulated community. 
  • They list a variety of methods used and places where ads and announcements were placed.  
  • According to a survey done by Professional Remodeler magazine, published in February 2012, 65% of remodelers surveyed estimated that less than 10% of their potential clients were aware of the rule.
  • RRP OutreachOn an early 2012 webinar with EPA Officials Regarding RRP public awareness and enforcement efforts hosted by NCHH, I asked EPA officials if they were doing any tracking to check the actual effectiveness of their outreach efforts.  They were not. 
  • Essentially the answer was that EPA is not a professional marketing organization and has no way of tracking results.   But they said they will be doing more outreach…
  • If EPA's outreach efforts have not produced adequate results so far, perhaps those assigned to design and implement the outreach tactics need to be held accountable to established desired results.  Spending money on outreach efforts without also measuring results is not a sound strategy for success.


Subject: Getting Firms Certified

  • EPA requires all firms doing renovation, repair and painting work on homes built prior to 1978 become EPA Certified Firms before performing or offering to perform such work.
  • On April 1, 1012 I gave the EPA an “F”.  It’s still an “F”
  • Before the rule came into effect EPA stated it estimated 211,000 firms engaged in renovation, repair and painting needed to become certified firms.  They also recognized there were other businesses that would need to become certified firms.
  • In the first two years post-RRP rule (ending in April 2012), the EPA expected 284,000 firm certifications.  Only 100,000 firms were certified, or 35% of those expected.
  • As of April 2012 EPA’s EPA web site claimed that EPA had certified 97,746 firms (118,885 firms including those approved by authorized states). 
  • I could not find a recent number of certified firms on the EPA web site
  • According to a report by the Joint Center for Housing Studies at Harvard University, in 2007 more than 650,000 businesses received a majority of their revenue by providing remodeling services.  The pie chart below is from the report.

 Number of remodeling contractors


  • The Harvard numbers do not include the large number of part-time, semi-retired, and “moonlighting” contractors reporting gross revenues of less than $25,000.   
  • I think we also know there are also many illegally operating contractors, operating under the radar, which did not make it into the census count. 
  • Also, the count does not appear to consider other related business types such as plumbers, electricians, wood floor refinishers, exterminators (20,000), landlords, property management firms, banks that own foreclosed properties, housing authorities, or cities/towns and municipalities (18,443).


Subject: Enforcement

  • There are 13 states that have taken over the rule so far.  That leaves 37 states plus American Samoa, District of Columbia, Guam, US Virgin Islands and Puerto Rico under administration and enforcement by EPA. 
  • On April 1, 2012 I gave the EPA an “F”.  It’s still an “F”
  • As of April 2012 EPA had only published one enforcement action.  Several have been published since then.
  • I could not find a current number of enforcement actions.  I think the state of Massachusetts, which took over the rule in Massachusetts, as one state has done much more enforcement than EPA.
  • Without a plan for adequate enforcement and the money to finance adequate enforcement, the rule in its current state is not a practical solution for protecting children.
  • Without adequate enforcement, complying business are essentially being punished while non-complying businesses enjoy a financial advantage in the marketplace.  This problem is also facilitated due to the lack of effective public outreach.


Subject: Protecting Children

  • On April 1, 1012 I gave the EPA an “Incomplete”.  It’s still incomplete.   So, because they haven’t provided any objective metrics, they now get an “F” from me.
  • It is a fact that lead is poisonous and RRP activities can cause lead poisoning.
  • Number of children with lead poisoningEPA does not know how many children were actually poisoned by RRP activities before the rule came into effect.
  • If you check any of the data it refers to RRP activities as the “likely source” of lead poisoning, not “the cause”.
  • EPA still has no way to know if the RRP rule is making a difference or not. 
  • Without knowing where EPA started and where we are now that the rule has been in place, EPA has no idea if what they have been doing is effective enough and or if or where it can improve effectiveness within the rule. 
  • Unfortunately, the rule may also be causing more children to be poisoned than before the rule came into effect, because of EPA's inability to adequately enforce it. 
  • As warned by the stakeholders before the rule came into place, the RRP Rule has fostered an underground economy of contractors purposely ignoring the rule to keep prices down and improve their ability to sell jobs.


Subject: Costs vs. Benefits

Note: Info below is directly from an EPA Office of Inspector General Report dated 7/25/12 titled: “Review of Hotline Complaint Concerning Cost and Benefit Estimates for EPA’s Lead-Based Paint Rule”

  • Although EPA stated that its economic analysis underwent extensive intra-Agency review and was approved by the Office of Management Budget prior to publication, EPA used limited data to develop its cost and benefit estimates for the Lead Rule.
    • The estimated cleaning and containment work practice costs to comply with the rule were not based on a statistically valid survey.
    • EPA did not quantitatively analyze or include other costs outlined in Agency guidance, such as costs due to increased consumer prices, costs of unemployment, and costs to markets indirectly affected by the rule.
    • EPA did not include the cost to renovation businesses of securing additional liability insurance.
    • EPA recommended additional work practices in a training program that, while not required by the rule, would likely result in additional cost because the regulated community would view these practices as required.

***From EPA FAQ: “And because EPA’s estimates reflect the cost to contractors, not the price paid by homeowners, the estimates do not include the contractor’s mark-up for profits."

  • The report clearly stated:
    • “Sound data on the rule’s benefits were not available at the time of the rulemaking, and this limitation was known to EPA and its scientific advisory committee. However, EPA went forward with the rule because its benefit-cost analysis indicated that the rule generated substantial benefits, and because EPA was legally obligated to issue the rule.”
    • “In our opinion, the data limitations in EPA’s analyses limit the reliability of the rule’s stated cost and benefits. 
    • “We recommend that EPA reexamine the costs and benefits of the 2008 Lead Rule and the 2010 amendment to determine whether the rule should be modified, streamlined, expanded, or repealed.
  • In 2011, President Obama’s Executive Order 13563, Improving Regulation and Regulatory Review, directed all federal agencies to develop plans for periodically reviewing existing regulations to determine whether any should be modified, streamlined, expanded, or repealed.
  • The 2008 Lead Rule and the 2010 amendment were not included in the scope of EPA’s regulatory review activities as required under Executive Order 13563.



Topics: EPA RRP Rule Updates, Effects of the RRP Rule, Government Regulations