A Few Good Men

All that is necessary for the triumph of evil is that good men do nothing.

Hard Work AheadTriumph of Right

Win, lose, or draw, there is a powerful and lasting legacy from doing what is Right. No amount of words can capture the essence of that Universal Principle. All I can do is to suggest, “Try it; you’ll like it!”

Within this series: Part I asked nicely; Part II probed into the core issue; now, We take a look at the choices before us.

There is only one way to defeat darkness: subject it to Light.

In this year of 2010, let’s use a 2 x 10 plank of action: If It Is To Be, It Is Up To Me

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Dear Commissioner:

The purpose of this correspondence is to ask for a response to my email of June 28, 2010, in regards to the Subject of Fairness. Since the underlying issue of our conversation is of paramount interest to the great State of Montana, the complete history of our exchange is available on my website.

Yesterday, the headline of an article from the Billings Gazette caught my eye:
Montana’s Unemployment Rate Up Again

This is the lead sentence for the article, “The state’s unemployment rate continues to climb into territory last seen in the 1980s.”

In the simplest of terms, the discussion between you and I can be summarized by an answer to this question: Is it the purpose of the Montana Department of Labor and Industry (DLI) to Educate and Grow individuals; or, to Punish and Thwart their right to work?

Apropos to this discussion is the wisdom inherent in these words by Edmund Burke:

All that is necessary for the triumph of evil is that good men do nothing.

Since a key component of happiness is rewarding work, unemployment is a scourge – on individual psyches and the moral fabric of our society.

Why, then, has the DLI chosen to target business owners, who provide opportunities for employment? Yes, a job for an Employee is one legitimate route to satisfying work. Another path is that of being an Independent Contractor. In fact, before people worked for companies, they worked independently to provide for their own needs. To be quite clear, unemployment is strictly defined as the lack of a job.

The older Lady in this saga, who provides opportunities to Montana Employees and Independent Contractors, approached me for help in her recent audit with DLI. She grew up on a dirt farm in North Dakota. There is something about the experience of a childhood with limited opportunity, because of little money, that can be the catalyst for real labor and industry.

This woman, a Montana entrepreneur, has chosen a life path of service to others – first as an Employee and then as an Employer. Her choices have provided opportunities for others to learn and grow. Literally, in more ways than one, her efforts have provided roofs over the heads of many families.

In my email to you of June 28th, I suggested an equitable resolution to the audit issue of Employee vs. Independent Contractor. Since there has been no response, I’ll further extend the boldness to suggest that the issue of Unemployment can be fixed by encouraging our Montana Citizens to focus on Work, rather than a Job.

If the State of Montana and DLI is serious about the unemployed, offer to waive the $125 fee (for at least a year) that is currently required to register as an Independent Contractor. The publicity for the State of Montana will be priceless. The opportunity for neighbor to help neighbor, by providing value to the marketplace, will be the greater reward.

In the interim, I, do, want answers to my questions. This is a Montana Employer, who is in need of understanding – from those who hold the fate of her business and the jobs of her employees, in their (your) hands.

Sincerely,

Kim

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www.kimfoard.com

Here To Help You

Do our Public Servants understand that they work for you, me, and that group, so eloquently defined by President Lincoln as, “We the People?!”

One on OneUpon hearing an auditor remark, “I’m only here to do my job.”; I always wonder, “Who wrote the job description?” And, do they understand that they work for you, me, and that group, so eloquently defined by President Lincoln as, We the People?!

This is a story about our Government in action. It is a real story told through my correspondence to the Commissioner of the Montana Department of Labor and Industry. Brace yourself; Truth is stranger than fiction!

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Dear Commissioner:

The purpose of this correspondence is to ask for your assistance in providing relief from hardship being incurred by Montana Small Business, as a result of audit efforts by the Department of Labor and Industry.

Recent experiences with small business owners clearly demonstrate that their treatment by the Montana Department of Labor and Industry is different than your public message:

Our mission is to promote the well being of Montana’s workers, employers, and citizens, and uphold your rights and responsibilities. We, at DLI, do this by remaining steadfast to our core values of customer focus, individual responsibility, individual growth, ethics in the workplace, and continuous improvement.

Quite simply and to clearly communicate the seriousness of the matter, without your intervention to promote an equitable approach to a relatively new law, Montana employers will not be able to continue in their businesses. At a time of historical high unemployment, I ask for your patience as I present this issue for your consideration.

The Issue: Employee vs. Independent Contractor

As foundational information, please refer to my recent Blog Post: Have Your Papers

Of the many Montana Small Business owners who are working hard to be in full compliance with labor laws, we will examine the fact pattern of one, who has reached out to me for help.

This small Company has provided employment to at least a dozen Employees for the last fourteen years that it has been incorporated. Its history of service and value to the Billings community goes back many years prior to that. To properly manage its business obligations, the Company uses the most recent release of QuickBooks accounting software and pays extra for the Enhanced Payroll Subscription. In recognition of the Company’s excellent employment practices, the DLI has assigned a Zero unemployment tax rate for the year of 2008.

In audit, the practice of this Company in hiring independent contractors (in addition to its Employees) is being challenged in ways far beyond a test to the actual Montana Law, and Administrative Rules. This business owner, an older lady, is having her core persona attacked.

She has diligently received contract documents from those holding themselves out to her as independent contractors, asked for invoices and statements of account, and furnished Forms 1099-MISC to these contractors. The technical aspects of the AB Test have been met.

The only thing, of which she was unaware and lacking in this story, is the Independent Contractor Exemption Certificate.

Before moving forward to take a look at the requirement for an Independent Contractor Exemption Certificate, let’s consider two activities which appear to require a Certificate; yet, are not being challenged by DLI.

1.) Bank Director Fees
2.) National Guard Recruiting Fees

In preparing many personal income tax returns for the Directors on the boards of Montana banks, I know for a fact that they receive Forms 1099-MISC reporting their remuneration as Non-employee Compensation. That income is, then, properly reported within their individual income tax returns on Schedule C, Profit or Loss from Business.

This last tax season revealed another twist to compensation paid to a Montana Guardsman by an Alabama company. This young man enlisted in the National Guard. He was encouraged to get his buddies to sign up, too. The “compensation” for doing so was reported on a Form 1099-MISC as “Non-employee Compensation” from a Company who, evidently, provides services for the U S Military.

The question that begs to be answered:  “Why is it OK for a multi-million dollar company to make payments and report them as Non-employee Compensation to a Montana resident; yet, a small Montana Company is being accused of improprieties?!”

On behalf of the small Montana Company, I ask for fairness in negotiating through the audit issues of the past, to provide this business owner the opportunity to continue to be a good citizen and a great employer.

The Facts: Government vs. Montana Company

1.) This new law was not administratively practical (ARM 24.35.141) until August 12, 2005.

2.) There is still ambiguity for Hiring Agents. Specifically, please, see the first two cites for the Montana Supreme Court Decisions applicable to this issue. Montana employers are given the impression that they can rely on the Independent Contractor Exemption Certificate; yet, “an employer has the obligation to make an initial good faith inquiry to determine whether the worker is an independent contractor in fact, as opposed to merely in name.” (If the State of Montana, with all of the taxpayer resources at its disposal cannot decisively make that determination, after asking for a sworn affidavit from an applicant, what hope is there for the Employer?!)

3.) Yet, the Montana Company, above, did just that: they made a good faith inquiry and determined that those whom they hired as Independent Contractors did, indeed, meet the factual test in more than name, or certificate.

4.) The audit representative for DLI expressed the Department’s approach by stating, “While we acknowledge this is a relatively new law and provided a grace period for the years 2006 and 2007, we are now putting the hammer down.”

5.) The lady in the story, above, and her Company have never before been audited.

6.) Of those she compensated as contractors for the years of 2008 and 2009, the majority have, now, obtained their status as Registered Independent Contractors, recognized by the Montana Department of Labor and Industry as such.

7.) Since the UI Contribution Rate for her Company is Zero, the real issue is the assessment of Worker’s Compensation rates, Social Security, Medicare, and other Federal taxes against payments she made to other Business owners for the value of their services, who have reported and already paid the taxes on their business income.

Our country was formed in revolution against “Taxation without Representation”. An even greater curse is “Double Taxation through Misrepresentation”.

The solution to all of this is to use the Audit Process to educate, not to punish.

In your words:

“We, at DLI, do this by remaining steadfast to our core values of customer focus, individual responsibility, individual growth, ethics in the workplace, and continuous improvement.”

That’s all I ask for the benefit of Montana Employers. I am available to facilitate an equitable resolution in the case above.

Respectfully,

Kim

~

www.kimfoard.com

Have Your Papers

There are only two legitimate classes of workers in the great State of Montana: Employees and Registered Contractors.

Passport & GavelAre You Prepared?

There are only two legitimate classes of workers in the great State of Montana: Employees and Registered Contractors.

Yes — that is a Period.

No exceptions.

A recent communiqué from one of the national Payroll Services identifies four areas receiving vigorous audit activity:

  • Worker Classification Issues
  • Fringe Benefits
  • Reimbursed Expenses
  • Compensation of Owner-Employees

Every business is at risk for increased scrutiny.

These issues are at the forefront of a Federal Government effort to raise billions through tighter enforcement. On a local level, the Montana Department of Labor and Industry is the auditing arm of the Government’s long reach.

From a recent CNNMoney.com article:

The IRS audit program is just the beginning of what will be “a new era of compliance,” says Gene Zaino, president and CEO of MBO Partners, a services firm that specializes in the independent contractor market. “Most states are now sharing data with the IRS, and many have set up task forces specifically [to address] misclassification. It used to be that if a business ran into trouble with a state labor department or with the IRS, the issue was isolated. Now, any kind of audit or compliance finding can set off a domino effect where the other agencies will get in on the action.”

Simply stated: The action is less than pretty, unless you are prepared and in compliance.

As a business owner in the State of Montana, you have two choices:

  1. Hire employees, pay required taxes, and provide legitimate benefits.
  2. Contract with individuals who can provide their Independent Certificate.

If you choose Option 2, the fun begins here: Independent Contractor Central Unit

A related Link on the right side of the Website above can be used to determine whether an individual is, indeed, registered. Or, click here for Independent Contractor Search.

For those individuals who need to register the Independent Contractor Exemption Certificate Affidavit with the State of Montana, click here for Application.

Dovetailing with this Worker Classification issue are two other facets of compliance:

  • Reasonable Compensation
  • Form 1099-MISC Reporting

For those businesses employing Officer-Shareholders, the odds are good that an auditor’s definition of “Reasonable Compensation” is anything greater than the Montana Unemployment Insurance annual taxable wage base. For the year 2014 that amount is $29,000. If owner-employees of the business are being paid less than that amount, be prepared to explain, “Why.”

Stealth IRS changes came close to requiring, starting in the year 2013, that all business payments for services, or purchases of goods, exceeding $600 in a calendar year, on a per Vendor basis, to be reported to the Internal Revenue Service on Form 1099-MISC. Since the law was changed before implementation, the only question is, “How long before we are required to play the game with this new set of rules?” Research has estimated the average cost for the typical small business to prepare these forms at $6,000 per year, if done manually.

The best word of encouragement is to start now in finding the Right Tools and a Coach who cares about your success!

www.kimfoard.com