# Dept. of labor audit



## kicknargel (May 21, 2014)

So we're getting an audit from the state dept. of labor. I think it's mostly routine to check that we're reporting accurately, etc. But I imagine the question of classifying over-hire workers as contractors will come up.

Like most or all shops I'm aware of, our full-time people are employees, and we bring in temporary people as needed as contractors on 1099s. We call around to see who's available for the dates we need help. The entertainment industry is a freelance system; most carpenters and painters behave like sole proprietors and piece together their business from various gigs. 

Does anyone have experience making that case on an official level?


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## Footer (May 21, 2014)

Your going to get dinged hard for it. Yes, it does happen, and yes it is illegal to do. Overhire people are not independent contractors if you are telling them how to do their job and when to show up. You should be putting them on W-2's. 

It is a massive problem in the industry that needs to be fixed. Many people don't report 1099's properly. Also, the business's that are doing the "hiring" is not reporting 1099's nearly as often as they should. You also run into all kinds of workman's comp and liability issues. The reason you are being investigated is most likely one of your "contractor's" reported you. 

Not all shops do it. In my area, only the crappy ones that you don't want to work for do it. Why do you not want to put these people on your proper payroll?


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## Dover (May 22, 2014)

Just be glad it is not the IRS. However I would still think you should find an accountant and perhaps a good lawyer. 

Best of luck to you
Dover


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## BillConnerFASTC (May 22, 2014)

Based on what my accountant and attorney tell me, its not black and white. Look up the 20 question/point IRS "test" for independent contractor status. You don't have to qualify on all 20 by any means but its a useful guide. There's room for interpretation but it generally is based on control.


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## rsmentele (May 22, 2014)

A theater I worked at got hit by this too. They hired all actors and musicians as independent contractors, they failed to report their 1099's and the state got involved....

Needless to say they became employees shortly afterwords and had to file W-2's... That didn't make them happy either because then the amount they were contracted for was being taxed, meaning they took home less, and they felt we should pay the taxes... Silly Actors, welcome to the real world!!

But they found out shortly after that that they could claim unemployment after their contract was over, that meant they didn't need to go back to waiting tables for a few extra months!


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## cmckeeman (May 22, 2014)

The theater i used to work at was telling us how to run the show, when to be there for the show, mandatory Wednesday rehearsals (improv club). And every so often the owner would get audited and never Dinged for having independent contractors working as employes.


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## BillConnerFASTC (May 22, 2014)

Spinmasters....


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## Footer (May 22, 2014)

cmckeeman said:


> The theater i used to work at was telling us how to run the show, when to be there for the show, mandatory Wednesday rehearsals (improv club). And every so often the owner would get audited and never Dinged for having independent contractors working as employes.



Plenty of companies do it, Crew One being one of the biggest offenders. 

Interesting article here: Independent Contractors in the Entertainment Industry


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## gafftapegreenia (May 22, 2014)

Footer said:


> Plenty of companies do it, Crew One being one of the biggest offenders.
> 
> Interesting article here: Independent Contractors in the Entertainment Industry



(S)crew 1 and their 1099s, one of their many claims to fame. Is Rhino 1099?


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## Jay Ashworth (May 22, 2014)

I am not here to speak to Common Industry Practice, though whatever it is in an area, I expect it would carry some weight. But those 20 Items on the IRS list are likely pertinent here, and the most common are probably "has own professional tools", "has multiple clients"; at least 5 in a year is best, is what I hear as an IT independent, and "professional skills required".


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## BillConnerFASTC (May 22, 2014)

Jay Ashworth said:


> I am not here to speak to Common Industry Practice, though whatever it is in an area, I expect it would carry some weight. But those 20 Items on the IRS list are likely pertinent here, and the most common are probably "has own professional tools", "has multiple clients"; at least 5 in a year is best, is what I hear as an IT independent, and "professional skills required".



I think of it as the means and methods issue - if you say build this and they do what you want how they want to do it and possibly employing other people and using their own tools and such - that's independent.

I am curious that after the circus fall in RI, that someone pointed out that circus performers are independent contractors. Seems like they have little control of when or what or who.


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## Footer (May 22, 2014)

gafftapegreenia said:


> Is Rhino 1099?



Nope, you are their employee.


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## carproelsofly (May 22, 2014)

Here's a very good document from NYS. The section covering Theatrical Productions is on page 5.

https://labor.ny.gov/formsdocs/ui/ia318.17.pdf


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## SteveB (May 22, 2014)

kicknargel said:


> The entertainment industry is a freelance system; most carpenters and painters behave like sole proprietors and piece together their business from various gigs.
> 
> ?



I don't know ANY carpenters at shops, painters in any shop or other facility environment, or freelance stage technicians in general who work as independent contractors. They may well be part-time employees, but they ARE employees, even if they are freelancing at multiple venues.

This method of attempting to classify such workers as independent contractors, was prevalent when I started in the business 40 years ago, but is nearly non-existent in my area (NYC) currently as the State of NY cracked down on this practice. For good reason.

It would seem that the minute you require a freelancer to work a set schedule (and what shop doesn't) you must classify them as an employee. Not much wiggle room on that issue and as Footer stated, I suspect the state labor dept. is going to come down hard on you.








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## lwinters630 (May 23, 2014)

I have experienced an IDES audit. Had a great attorney. After the audit, I worked with them on a audio series for independent contractors. 

First don't talk with them n do it thorough your attorney. 

There is an ABC test they use. The main point is, what's the difference between them and you. Why are you taxed and they are not. 

Direction and control - if you tell them where, when, how, and with what. They're not independent. 
Are they a business - do they advertise, have a company name, have expenses, file business tax return. If they are incorporated you are off the hook. And for all the above. .. You have to prove ít. Keep good records.
Do you have a contact - for each job - it doesn't matter what you call them, or what you think they are. 

I think by now you have figured out your in deep dodo. Forget the account, take all your records to your attorney, they can do the audit there. It is safer.


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## Footer (May 23, 2014)

Independent Contractor vs. Employee – misclassification can cost entertainment industry employers dearly. | Law Offices of Gordon P. Firemark

Another good one. 

And to @kicknargel... Time to lawyer up. CDLE - Unemp Insurance:Worker Misclassification

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## BillConnerFASTC (May 23, 2014)

lwinters630 said:


> Direction and control - if you tell them where, when, how, and with what. They're not independent.



I don't believe it's so black and white unless you mean all of those, not just some. You tell an independent contractor to build a wood house here, they are still a independent contractor. But it is about control and what the usual working arrangements are and especially, if the contractor works for others in a similar relationship. I can hire four people to move boxes for a day and if they are regularly a group that move boxes for other people, they are an independent contractor - even though I'm controlling the what, when, where. If I put up a sign or add saying I need four people to move boxes and they usually wash cars or sweep floors, same work, same location, but not independent. 

Let's face it, laws are written to keep lawyers employed as the highest priority, and these do that for sure.


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## Footer (May 23, 2014)

BillConnerASTC said:


> I don't believe it's so black and white unless you mean all of those, not just some. You tell an independent contractor to build a wood house here, they are still a independent contractor. But it is about control and what the usual working arrangements are and especially, if the contractor works for others in a similar relationship. I can hire four people to move boxes for a day and if they are regularly a group that move boxes for other people, they are an independent contractor - even though I'm controlling the what, when, where. If I put up a sign or add saying I need four people to move boxes and they usually wash cars or sweep floors, same work, same location, but not independent.
> 
> Let's face it, laws are written to keep lawyers employed as the highest priority, and these do that for sure.



Its kind of like porn... I'll know it when I see it. In this case most of the time in our industry overhire people should be paid as employees. Crew chiefs and that kind of thing could go either way. No matter what, lawyers should be involved going forward. This is also something that if you can avoid paying someone as a contractor you probably should.


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## BillConnerFASTC (May 23, 2014)

I suppose it depends on the task and how we individually visualize the situation but I'd say you're better off if you can get the work done by an independent contractor. Many fewer liabilities, much less paper work, and generally simpler. Works for something like a specific task - design or build props or a set or costumes; even provide sound system for this. Doesn't work if you want to hire 4 specific carpenters to work in your shop and do what you want when you want and how you want with your tools and supplies. Does work if you can send them plans and they deliver it. It's really how you organize it but having hired both ways - in a for profit business without an administrative department to do the crap work - I'll never add a wage or salaried employee again. 

So, different perspective with different situation - sure.


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## SteveB (May 23, 2014)

I'm curious as to how designers work when under a USA (or any other) contract. Are they employees of the theater ?, or independent contractors ?. They rarely bring their own "tools" - I.E. Console, instruments, dimmers, etc.... And they are usually working a technical schedule as determined by the venue. Who has experience with this ?, and what was your situation ?. 


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## MNicolai (May 23, 2014)

SteveB said:


> I'm curious as to how designers work when under a USA (or any other) contract. Are they employees of the theater ?, or independent contractors ?. They rarely bring their own "tools" - I.E. Console, instruments, dimmers, etc.... And they are usually working a technical schedule as determined by the venue. Who has experience with this ?, and what was your situation ?.
> 
> 
> Sent from my iPad using Tapatalk



That's a bit different than when you're on a call list for the venue, supervised/managed by the venue's staff, and you work there a few days a week, most weeks out of a month, for a few years total. That's the case that I believe is at the core of this particular discussion in regards to overhires.

When I do design work (non-USA), I'm hired by the client, independent of the venue, providing my own tools, my drafting software, and working on my own schedule while I coordinate with the client's schedule. As far as my clients are concerned, the person who pays me doesn't care about my paperwork or process so long as the right things happen at the right times during their shows, and without too many speed bumps getting our way up to opening night. It'd be a hard case to make that most designers fall under anything other than independent contractors, except where they choose to be employees or predominantly design for the same clients show after show after show, using the client's resources to draft/implement their design.


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## lwinters630 (May 25, 2014)

It falls under "normal course of business". If retail store hires manager, sales staff as employees. They could contract a cleaning service as an independent contractor. Because it is not in their normal course of business.

You cannot hire an independent contractor, you have to contract them. Yes it's words but they will hang you on it.

If you have a theater that rents out its venue to out side groups, they can bring in their own lighting designer and use yourequipment. But if you hire LD, sound operator and stage crew, they're employees.

The Gray...... If you have a fully equipped theatre. Fully staffed and produce 80% of your own. But then you contract a rental, who by contract, wants a specific LD. You better have a clear contract with the LD. Even reference the other rental contract. But still be able to prove the LD has other customers, advertises (business card, Web page, sign on truck) certificate of insurance and company name. The more proof you keep in a file, the better.

Remember the government just play by the rules, they write them.


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## BillConnerFASTC (May 25, 2014)

Its difficult to discuss with such a wide variation in experiences. Just the concept of a lighting designer being the board op is foreign to my experiences.


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## MikeJ (May 25, 2014)

BillConnerASTC said:


> Its difficult to discuss with such a wide variation in experiences. Just the concept of a lighting designer being the board op is foreign to my experiences.


I think that really depends on the situation or event. There are plenty of "lighting Designers" that are completely useless "artists" who say crap Like "that color blue is just a little too happy; a little darker...a little more... STOP! Perfect. No, wait. I think I hate that. Start over."
For a lot of non-theater work, I think that some clients have figured out that they can just express their concepts directly to the programmer, and avoid the middleman. Programmer/board op/production company, tags on a small design fee, and everyone is happier.

This though, is highly dependent on the market, a lot of places, a tech will never touch a board, a programmer will never touch a fixture, and a Designer will never touch a thing.


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## BillConnerFASTC (May 25, 2014)

MikeJ said:


> I think that really depends on the situation or event. There are plenty of "lighting Designers" that are completely useless "artists" who say crap Like "that color blue is just a little too happy; a little darker...a little more... STOP! Perfect. No, wait. I think I hate that. Start over."
> For a lot of non-theater work, I think that some clients have figured out that they can just express their concepts directly to the programmer, and avoid the middleman. Programmer/board op/production company, tags on a small design fee, and everyone is happier.
> 
> This though, is highly dependent on the market, a lot of places, a tech will never touch a board, a programmer will never touch a fixture, and a Designer will never touch a thing.



Q.E.D. - Our experiences are different.


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## thomp01d (Jun 8, 2014)

Employee misclassification is a huge problem in the entertainment business. If I as an employer interview and hire a worker, provide tools, instruction on processes, control of time/place/methods -generally the worker is an employee and must be paid accordingly. Additionally, many employers abuse overtime regulations - if you make less the DOL weekly minimum, you are entitled to OT pay, regardless of exemption. (The US DOL is assessing a raise in the minimum as well - it it happens, it'll be in 3-5 years.)

Signing a contract or agreement doesn't change the relationship, if the actual business relations ship is that of employer/employee. Rule of thumb: are you the customer? If you're contracting with a person or company for services rendered, you can have a vendor/contractor (W-9) relationship. If you're paying someone to perform work for your company, you should probably be paying on a W-4.

An example is designers: if a designer is contracted, they are generally paid a fee upon completion of the Services and a satisfactory work product is provided. This is a legal relationship. A technician is given a call time, run sheets, supplied tools necessary to perform the required tasks, and has a clear job description. This is an employee.


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## DuckJordan (Jun 10, 2014)

Quick question, Overtime issues, Is there a legaly set overtime number? or are companies allowed to pay half rate to their employees for OT


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## SteveB (Jun 10, 2014)

OT is a state by state issue, unless the organization meets the requirement that would allow the Fed DOL OT requirements to kick in. In NY State it's essentially based on the minimum wage, which is $12 hr. for OT. You have to paid be at least that.

If your theater/company does interstate commerce worth more then $50,000 pr some such, then the Federal law kicks in, which is weekly rate divided by 40 hrs., determines the hourly rate, then it's 1.5 times that per hour. As note, some governmental employees (state, fed, whatever) are now covered under the Fair Labor Standards Act, which is the governing law.


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## Jay Ashworth (Jun 10, 2014)

In short, if you want to pay less than 1.5 times someone's hourly rate as OT, expect to involve counsel.

Sent from my SPH-L720


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## SteveB (Jun 11, 2014)

Jay Ashworth said:


> In short, if you want to pay less than 1.5 times someone's hourly rate as OT, expect to involve counsel.
> 
> Sent from my SPH-L720



Understand though that in NY, they are only required to pay you $12 an hour as your OT rate. The law does not require them to base your OT rate as 1.5 times whatever you happen to making per hour on the call. So if you are making $24 hr., you may not get $36 as an OT rate, they are not required to do that, unless the employer meets the federal guidelines for the FLSA.


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## Jay Ashworth (Jun 12, 2014)

Huh.

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## SteveB (Jun 12, 2014)

Jay Ashworth said:


> Huh.
> 
> Sent from my SPH-L720



Note that the NYS minimum and OT laws are varied and depends on the industry you work in, exempt/non-exempt status, etc... but typically and as applied to the theater business,
the state labor law only requires an employer to pay the minimum wage, currently at $8 hr. If you make more then that, good for you. Plus they only require OT to be paid if you work more then 40 hrs in a work week and then the OT rate is 1.5 times the basic hourly rate, so OT is at $12 an hour.

If your employer pays you $24 per hour, they are not, according to NY State law, required to pay you OT at 1.5 times that rate. They only have to pay you OT at the state minimum, which is $12 hr.

Or a company might meet the federal requirement for the Federal Fair Labor Standard Act .

The current FLSA definition of a private company to meet the federal requirement is: "A company/organization with annual dollar volume of sales or receipts in the amount of $500,000 or more". Most governmental organizations are covered, as are schools. Private college ?, not sure. In general, the company must as well be engaged in "interstate commerce"

The federal law that applies to non-exempt employees in certain industries (theater/entertainment is covered AFAIK), states that the employer must pay OT at a rate determined by their weekly salary - which determines their hourly rate, then 1.5 times that hourly rate for hours worked past 40. So if the company qualifies, your $24 hr. rate gets you $36 per hr. past 40 hrs. worked.

If you work for a non-profit organization, they are exempt from paying you OT based on the federal guidelines, as the courts do not consider a non-profit "to be engaged in commerce" . Whether the non-profit then falls under the state guidelines is determined on a state-by-state basis as per local laws governing OT (if any).

http://www.insidecounsel.com/2013/03/18/labor-non-profits-and-the-flsas-overtime-provision

http://www.dol.gov/whd/flsa/


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## JD (Jun 12, 2014)

Simple rule of thumb- Who wants to be 1099 vs W2?
If it is the pseudo-contractor who wants this be suspicious! They probably do not intend to file the income.
Any person in their right mind would rather pay 7.5% FICA on a W2 then pay 15% on their 1099 income. 
A true business with lots of other expenses will function more effectively on 1099 as they can remove all of their expenses. The "lone person" is a different story.
Be especially cautious if you are entering a situation where you will be providing more than 10% of that individual person's income.


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## BillConnerFASTC (Jun 12, 2014)

JD said:


> Simple rule of thumb- Who wants to be 1099 vs W2?
> If it is the pseudo-contractor who wants this be suspicious! They probably do not intend to file the income.
> Any person in their right mind would rather pay 7.5% FICA on a W2 then pay 15% on their 1099 income.
> A true business with lots of other expenses will function more effectively on 1099 as they can remove all of their expenses. The "lone person" is a different story.
> Be especially cautious if you are entering a situation where you will be providing more than 10% of that individual person's income.




Why would you care if you - or the employer - file the 1099? All of my income is 1099, and yes I file quarterly and pay all of the FICA and other compliance. And if you have any doubt, the governments - city, county, state, and federal - are very anti-business and make it just extra difficult to make these payments. And I'm not sure I can make any more expenses tax exempt than anyone else.


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## JD (Jun 12, 2014)

BillConnerASTC said:


> Why would you care if you - or the employer - file the 1099? All of my income is 1099, and yes I file quarterly and pay all of the FICA and other compliance. And if you have any doubt, the governments - city, county, state, and federal - are very anti-business and make it just extra difficult to make these payments. And I'm not sure I can make any more expenses tax exempt than anyone else.


When it comes to 1099 fraud, it is usually the recipient who triggers the initial audit by not showing the income. If an individual asks to be paid 1099 I usually dig a bit deeper. In my case, it is usually musicians or paid choir members we are hiring in for a service. One shots are very common and most are 1099. Still, with little overhead, this person should be happier if they are a regular to be paid W2 where they are only responsible for 7.5% FICA as compared to 1099 where they are responsible for 15%. All the extra work is on my end anyhow. Still, if more than one gets popped for non-payment of taxes, they tend to check out the company writing the checks. Currently, I have 3 paid choir on W2.


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