An Iowa roofing company has lost its legal battle to avoid paying employment taxes by classifying its workers as independent contractors.
The company had argued that because it doesn’t treat its workers as employees – requiring them to use their own cars and tools while denying them training and benefits – it was not liable for taxes as an Iowa employer. The case illustrates how some companies have sought to avoid certain tax liabilities by denying workers benefits that are traditionally afforded company employees.
Court records indicate Iowa Workforce Development audited Contreras Roofing, run by Leonel Contreras of Des Moines, at some point in the past two years, reviewing its practices as far back as 2017.
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After the audit was completed, IWD concluded the company’s 10 workers were each “employees” as defined by Iowa law, which would mean the company should have been making unemployment-insurance payments related to their work.
Contreras argued otherwise and said the workers, several of whom are his relatives, were independent contractors.
As evidence of that, he cited the fact that the workers show up on job sites without knowing how much they’ll be paid; they use their own vehicles; they supply their own tools; they have no set hours and no company-provided training; they have to return to job sites at their own expense to fix any mistakes; and they have no benefits or health insurance.
All of that, he argued, showed the workers were independent contractors which relieved him of the obligation to pay any unemployment-insurance taxes that might be tied to their work.
IWD disagreed and noted that the workers were not incorporated as their own businesses, had never registered with the state as contractors as required by law, and had never invoiced Contreras for any of their work.
The agency also reviewed payroll records and found that although the workers were allegedly being paid according to piece-work, their total annual wages were all reported in round figures, such as $90,000 or $70,000, which suggested they were employees being paid a fixed salary.
After concluding Contreras Roofing was, in fact, the workers’ employer, IWD informed the company it owed $64,862 in unpaid unemployment-insurance taxes.
The company appealed that decision, but Administrative Law Judge Joseph Ferrentino sided with IWD. He noted there was no evidence the workers performed any labor for other roofing companies or for the general public, as they would if they were independent contractors.
In seeking to have the courts overturn that decision, the company’s attorney, Valerie Cramer, argued IWD’s actions ignore decades of past practice in treating construction workers as independent contractors. She also alleged racial discrimination, claiming IWD “has avoided reclassifying white-owned companies” as employers.
Polk County District Judge David Nelmark recently ruled in favor of the state, stating the evidence was “overwhelming” that Contreras was the workers’ employer.
As for the claim of selective and racially motivated actions by IWD, Nelmark noted that Cramer “provided no legal support or evidence for this argument.” He pointed out that Cramer represents several Spanish-speaking clients who were recently audited by IWD.
“Without more evidence, the court can only surmise that this argument arose from sample bias,” Nelmark ruled. “Cramer’s sample, i.e., her clients who have recently been audited, is an unbalanced representation of the overall population being audited by the IWD. Cramer focuses representation on Spanish-speaking clients, so in her limited sample pool, primarily Spanish speakers are being audited.”
iowacapitaldispatch.com
https://iowacapitaldispatch.com/2023/09/25/roofing-company-loses-court-fight-over-unpaid-employment-taxes/
