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Part 2: Six of Nine Conditions - Indian Tribal Government
Condition Four - Incurs Main Expenses (Case Studies)
The individual incurs the main expenses related to the services he or she provides under contract.
Case Studies Relevant to Condition Four
John A. Lozon had been doing business for 12 years as J. Lozon Remodeling, a sole proprietorship. At the end of 1995 Mr. Lozon informed his employees that they would become independent contractors as of January 1, 1996.
The services of Steve Asher, one of Lozon's workers, in installing siding provided by Lozon, presumably consisted of such tasks as measuring, cutting, fitting and fastening the siding to a building.
In these circumstances, the expense of purchasing the siding from a building materials wholesaler was not an expense related to the services performed by Asher. It was also not an expense borne by Asher.
Expenses that were related to the services Asher performed for Lozon were the expenses of maintaining his home office, and the expenses of utilizing, maintaining, repairing or replacing his tools and equipment. Asher incurred the main part of those related expenses; he apparently incurred all of those expenses.
The commission found that Mr. Asher met the conditions of this test for installation services he provided to Mr. Lozon in 1997.
Beginning in 1997, Ryan Gronna, Philip Lewis and Terry Osmanski performed paid services consisting of the installation of carpet and wall coverings for Thomas Gronna.
The commission considered it reasonable to infer that the services in issue consisted of measuring, cutting, stretching, fitting, fastening and trimming floor and wall coverings using various hand tools owned by the individual. No tools or equipment belonging to the employer were used.
The cost of raw materials in this case was not identified, and there is no evidence that it was incurred, even temporarily, by the individuals in issue. Such cost clearly was incurred by another party, either by Thomas Gronna or, more likely, the carpet retailer with whom Thomas Gronna contracted.
In this case, the specific services the individuals were shown (by reasonable inference) to have performed were all performed with the individuals' own tools. The main expense related to the individuals' performance of their services was the cost of their tools, which was borne by the individuals with no reimbursement from Thomas Gronna. Accordingly, the individuals incurred the main expenses related to their performance of services under their contract with Thomas Gronna.
The commission therefore finds that Thomas Gronna met his burden of showing that this condition was met as to all services performed for him by all three individuals in issue in 1997 and 1998.
Quality Communications Specialists (QCS) is a cable television wiring service that was contracted by Time Warner Cable to connect, service and disconnect cable television service in subscribers' homes. QCS hired five individuals as independent contractors to do this work.
What services are performed under the contract -- The services performed under the contract here include working on cable connections: creating cable connections, removing them, and checking on the status of and servicing existing connections.
What expenses are related to the performance of those services -- The expenses that are related to the services described include the regular "overhead" expenses such as insurance and costs of the vehicle necessary to get the large equipment (ladder) to work sites. There is also expense involved with the equipment. The necessary equipment includes hand tools and a ladder. In addition, the hand-held computer used to record data about the connections is also a piece of equipment necessary to the services performed under the contract. The expense for the materials used by the workers in this case is an expense related to the service they perform.
Which expenses are incurred by the person whose status is at issue - The workers incur the expense connected with regular "overhead" expenses such as insurance and costs of the vehicle necessary to get the large equipment (ladder) to work sites. They also incur the expense connected with the ladder and hand tools. However, they do not incur the equipment expense of the hand-held computer, and they do not incur the expense of the materials which are used.
Do the workers incur the "main" expense - The commission concluded that the evidence does not meet QCS' burden of proving that the persons whose status is at issue incurred the main expenses related to the services they performed. As far as equipment expense is concerned, QCS offered inadequate evidence to determine what the cost of the equipment was, and what the useful life of the equipment was, and what the monthly expense equivalent of the equipment was; in addition, given that the equipment which was not provided by the workers (the hand-held computer) was apparently of greater value than the equipment that was provided by them (ladder, tools), it seems likely that the workers did not incur the main part of equipment expense related to their services. With respect to other expenses, QCS offered inadequate evidence to determine what the expenses for insurance were and what the expenses for materials were. In addition, given that the material expense which was not incurred by the workers was apparently greater in value than the insurance expenses which were incurred by them, it seems likely that the tap auditors did not incur the main part of those expenses either.
Spencer Siding, Inc. (Spencer), during 2001 and 2002, entered into oral contracts with 34 individuals (workers) to perform roofing, siding, and framing services for various general contractors. Spencer essentially functioned as an expediter for these general contractors and, for his efforts, deducted 10-12.5 percent from the amount the general contractors paid to Spencer for the roofing, siding, and framing services provided by the workers.
The services performed under the contracts at issue here include providing roofing, siding, and framing labor, but not materials, to builders and homeowners.
A threshold question is whether the cost of the materials utilized by the worker, e.g., roofing shingles, siding, and lumber, should be considered an expense "related to" the performance of their services.
The commission has held that construction materials are not a subject of the contracts at issue. Moreover, the commission has looked to the practice in the particular industry to answer this question, and has generally held that materials installed by workers in the construction trades, such as the workers here, should not be considered as a related expense. As a result, the cost of materials should not be factored into the apportionment of expenses for purposes of this test.
Here, the workers generally provided their own insurance and transportation, and certainly their own tools and equipment. Spencer provided a home office where he presumably spent at least a portion of his work week on matters relating to the workers. Given the lack of evidence specifically quantifying the cost of any of these items, the record does not support a conclusion that the workers bore the main expense related to the services they performed under their contracts with Spencer.
As a result, the commission determined that this test was not satisfied.
Further Reading and Research
If you wish to read and research further LIRC, circuit court and court of appeals cases on Condition Four, please click on the following hyperlink from the LIRC Decision Digest: EE 410.05 - incurs main expenses.