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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

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 www.osha.gov 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

RRP Conundrum: To Test or Not to Test for Lead Paint.

Posted by Shawn McCadden on Sun, Feb 24,2013 @ 06:00 AM

RRP Conundrum: To Test or Not to Test for Lead Paint.

RRP Lead test considerationsSince the EPA RRP rule came into effect in April of 2010 renovation contractors have debated and bantered the topic of doing lead testing before they offer to sell and or perform renovations at pre 1978 properties. Due to lead testing disclosure requirements many contractors and properly owners have concerns about doing the testing.  Once a property is identified as containing lead many other laws, legal considerations (page of related articles) and potential liabilities kick in for both.   The catch 22 on this subject is that, under the RRP rule and the OSHA lead in construction regulations, if testing is not done before work begins, contractors must assume there is lead present.   It’s only natural under this scenario then that renovation workers, property owners and tenants at those properties are also left to assume, and worry, that there is lead and conducting renovations may leave them exposed.

Should I test for lead paintOften discussions on these topics get passionate when contractors express their concerns about the liability they feel the rule exposes them and their businesses to even if they follow the rule and comply with all of its lead safe work practices and documentation requirements. Many contractors feel the EPA should have written some level of protection from liability into the rule for those renovators who abide by it. 

Recently I discussed these considerations with John MacIssac of ASAP Environmental.  John is MA State Certified Lead Inspector and Risk Inspector and an expert in renovation and construction.  During that conversation John and I assembled a list of the considerations that seem to rise to the top during those discussions.  

Who pays for RRP lead testing?

If a certified renovator will not be the one doing lead testing for RRP purposes, the testing must be done by a licensed lead testing professional.  Licensed lead inspectors in Massachusetts and other states cannot accept money for lead testing from contractors under contract with a property owner.  Therefore the homeowner is responsible for payment of all services relative to the lead testing.

Are you removed from liability if RRP lead testing is done?

Depending on the contractor liability insurance that you have you may be removed from liability if you do the testing, cleaning and cleaning verification yourself.  If you do not have insurance you are not removed from liability.  If you have a licensed lead inspector do the testing and clearance you are removed from liability if the company you hire to do the testing has their own coverage.

Considerations related to doing testing yourself using test kits vs. using a licensed lead Inspector

    • Testing for lead with FRX gunTime it takes to do the testing and fill out the paperwork
    • Cost of test kits depending on number of components to test
    • Damage to components
    • The EPA recognized lead test kits are qualitative where as a XRF test is quantitative.   Under the EPA RRP rule’s legal definition of lead paint, the amount of lead present may be below RRP definition, but, if using test kits, any positive result triggers need for compliance even if below definition.

Pretesting to establish a point of reference when clearance testing will be a requirement at completion

A pretest for lead dust could establish whether the site is already contaminated or not.   If it is, who will perform and pay the related costs to get it cleaned up before the contractor starts renovation work so the contractor is only then responsible to clean up affected work areas and pass dust wipe clearance testingat completion?

 

Education will be key in preventing liability

RRP TrainingThere are typically no easy answers to these considerations or guaranteed ways contractors can sell and do their work to prevent the possibility of liability.  That said education about the considerations and available options is probably the best way for contractors to protect themselves and their business.

If you’re in Massachusetts and want to learn more about the RRP rule, lead testing considerations and lead testing options John will be hosting a free Lunch and Learn Session at National Lumber in Mansfield MA on March 3rd, 2013 from noon to 1PM.   The Lunch and Learn Session will be held before the start of a workshop presented by RRP Instructor and RRP Rule expert Mark Paskell titled RRP and OSHA Workshop for Contractors and Remodelers” that will also include a discussion about the differences between the EPA RRP rule and the Massachusetts RRP regulations.

 

 

Topics: Effects of the RRP Rule, OSHA Considerations, Legal Considerations, Government Regulations, Insurance Considerations, RRP Related, Lead Test Kits and Testing

Checklist for Contractors Offering Snow Removal Services.

Posted by Shawn McCadden on Fri, Feb 08,2013 @ 09:17 AM

Checklist of Consideration for Contractors Offering Snow Removal Services.

Making money doing Snow removal

 

When winter snows and ice dams hit many contractors see offering snow and ice dam removal as an opportunity to make money.   If you’re considering snow removal as an opportunity for your business thinking ahead about how and where you offer it, as well as how you will perform the work, can help protect your business from inherent risks.  Thinking ahead about your approach can even help you drum up additional work after the snow has disappeared.

Offering snow removal services makes sense for many contractors 

After all, if work is slow during winter months, snow removal can bring in extra revenue.   Also, many projects come to a halt when the weather makes working outside impractical or makes going in and out of a building while working on interior renovations dangerous and messy.   If you price it correctly, offering snow removal and ice dam removal can help keep employees working and help contribute gross profit to cover business overhead.

How the snow removal checklist list came about

Offering Snow and ice removal servicesSeveral years ago I helped one of my remodeler coaching clients plan out how to offer and perform snow removal services.   He called me because he realized there were a lot of things he should consider before just sending his guys out with there with shovels and axes.  Below is a list of considerations from my coaching session notes created during my discussions with him.   By sharing my notes my hope is that you will find them helpful, you will price the work for profit, you and your employees will be safer while performing the work, you can use the opportunity to create new customers and you will generate future work from those that hire you.

 

Checklist of Snow Removal Services Considerations for Contractors:

  • Suggested he consider the work is labor intensive, he will not be earning his typical gross profit on subs or materials, be sure to price hourly rates accordingly.
  • Agreed on $300 first hour with two men, $80/hr per additional man hour.
  • 4 men doing it currently.  Full employees with Workers Compensation (WC) coverage. 
  • Charging for snow removalDiscussed properly equipping his employees to avoid risk and health problems. Confirmed he has fall protection equipment needed to meet OSHA requirements and employees know how to use it.  Should try to do as much of the work as they can from the ground.
  • Confirmed that he knows which WC classification workers will be in while doing the work and what rate he will be charged on all related payroll.
  • Discussed a variety of ways to do the work to limit residual damages.
  • Discussed setting realistic expectation with clients before doing the work. Agreed that only using a verbal agreement about services would not be acceptable.
  • Help home owners understand nature of the work, let them know that damages will happen and that he cannot guarantee preventing leaks or any possible damages inside or outside.
  • Suggested he have an agreement; created and or reviewed by legal counsel.
  • Suggested he disclaim in the agreement any water damage prevention and or remediation responsibilities.
  • Target market area Look at the work as a good way to meet new clients.  Because there might be more demand than he can service, be selective about who he will work for, make sure they fit within his target customer/location niche.
  • Suggested he make follow up calls to verify home owners are all set and happy, ask if they should come back if it keeps snowing.
  • Collect contact info including e-mail addresses so he can re-market for future work.
  • If he uses any subs make sure they are properly insured and follow OSHA requirements.  Make sure subs know not to attempt to solicit or accept any work from his customers.
  • Keep emergency contact info on site and or in each vehicle.
  • Suggest he ask about future work, both snow related and remodeling.
  • Could create a checklist of things to ask or tell customers related to the work and future work; what his company does.  Said he has already created a simple sheet listing other work they do.
  • Suggested he should be prepared regarding how to differentiate his business from other businesses offering the work. Discussed one way is to offer all clients an insurance certificate that lists the home owner as an additional insured, sent direct to the client from his insurance agent before work starts.  Verify his agent is prepared and capable to do so.
  • Suggested considering doing a YouTube video commercial about the service and put it on his website ASAP.
  • selling Ice dam removal servicesDiscourage use of Red Bull, maybe even coffee. Suggested hot chocolate and donuts.
  • Suggested refrigerator magnets would be a good leave behind.  Also consider 5-5-10 door hanger package we had discussed on a previous call about jobsite marketing.
  • Asked him what his top three takeaways from our discussion were:
  1. Caution regarding liabilities, set expectations with clients in writing.
  2. Realizes the marketing opportunity, concentrate on working for his target customer.
  3. Keep an eye on the big picture to avoid liabilities and not miss an opportunity by being blinded by a just getting the work done mentality.

 

Topics: Success Strategies, Differentiating your Business, Earning More Money, Marketing Ideas, Mentoring/Coaching, Marketing Considerations, OSHA Considerations, Subcontractor Considerations, Legal Considerations, Prequalifying, Seasonal Opportunities

OSHA Compliance Checklist: Will You Be Ready If OSHA Visits You?

Posted by Shawn McCadden on Fri, May 25,2012 @ 09:00 AM

Compliance Checklist: Will You Be Ready If OSHA Visits Your Job Site?

OSHA Compliance for ConractorsRecently there has been a lot of buzz around the remodeling and home improvement industries regarding OSHA enforcement.   OSHA has definitely stepped up its focus on residential construction.   With the onset of summer weather much more work is being done outside making it easier for OSHA Inspectors to observe not only where work is happening but also easily observe and identify violations by only having to drive by construction sites.  Inspectors have been instructed; if you see it - make a visit.  One contractor even reported that an OSHA Inspector was driving around Cambridge MA on a bicycle!

OSHA requirements are not new, even though you might think so by reading some of the banter on sites like LinkedIn.  Significant OSHA enforcement within the residential construction industry has only recently been happening and has been getting a lot of press coverage.  As a result many contractors are only just now becoming aware that OSHA compliance and the related expenses to comply apply to them.    

 

When Does OSHA Apply?

OSHA complance for subcontractorsOSHA requirements do not apply if you are the business owner and only work alone.   However, OSHA requirements do apply when employees or other workers conduct work activities at your jobsite. So, if you are a general contractor, OSHA will hold you responsible for verifying OSHA compliance and overseeing the actions of your subcontractors while at your jobsites.   

Depending on the type of work you perform, specific OSHA compliance requirements will vary.   To simplify what you need to consider, just assume that no matter what they are doing, your business is responsible to protect the health and safety of all workers at your jobsite.  To protect your business and your employees, I suggest OSHA compliance oversight should be included in the job descriptions for lead carpenters, production managers and project managers.

Be Sure To Document Worker Training

OSHA Fall protectionBelow is short a list of things contractors should consider if they want to be ready when an OSHA Inspector drives by and or stops in to check out your job site.  This list comes from Mark Paskell of The Contractors Coaching Partnership.  Mark helps contractors and their employees comply with OSHA.  He offers group training classes as well as company specific training and assistance with compliance requirements including jobsite practices and the gamut of required documentation.  When I spoke to Mark about this topic he stressed that OSHA was concentrating heavily on worker training and protection from fall hazards, and that contractors needed to have written documentation of the training they provide.

 

OSHA Compliance Checklist for Contractors:

  • Keep your job site in a clean an orderly manner
  • If on roofs above a 4 pitch use anchor points, harnesses and lifelines
  • If you do not use harnesses use guard rails
  • When setting ladders make sure they are 3 feet above the roof edge and on stable ground
  • Don't use ladder jacks with ladders over 20 feet
  • If you use ladder jacks over 10 feet makes sure you are tied off from above
  • Wear hard hats and safety goggles
  • Make sure scaffolding is set properly with planking
  • Set ladders at the right angle
  • Don't climb scaffolding bracing
  • Don't use the top steps of your step ladders
  • Use ladders and step ladders only within the manufacturer's parameters 
  • Use guard rails on pump staging and do not forget the ends
  • Cover skylights in the work area
  • Always us guard rails on landings, stairs and ramps
  • Use guard rails across large openings on upper levels
  • Don't set ladders or staging within 10 feet of power lines

 

Topics: Worker Training, Production Considerations, OSHA Considerations, Subcontractor Considerations, Estimating Considerations