Federal tax rules deem newspaper carriers as independent contractors. However, several states have been aggressively pursuing newspaper companies to treat their carriers as employees versus independent contractors, thereby subjecting employers to state unemployment taxes.
There is no single rule or test for the determination of whether a worker qualifies as an employee or independent contractor. However, there are three broad characteristics that the government uses to determine if a business relationship exists or if an employee-employer relationship exists: 1) Behavior control, 2) financial control, and 3) type of relationship. Under federal tax rules, newspaper carriers are treated as a direct seller and an independent contractor if the following conditions have been met:
- The worker is in the business of delivering/distributing newspapers or shopping news, including directly related services.
- All the compensation for these services directly relates to sales or other output rather than the number of hours worked.
- The services are performed under a written contract that states the worker will not be treated as an employee for federal tax purposes.
However, Congress did not mandate that states enact a similar exemption for newspaper carriers, thus leaving the decision up to each state. As a result, the rulings from state to state have varied and in some cases are contingent on the facts and circumstances of each situation. Some states use different rules in making an independent contractor determination. For example, New Jersey uses what is called an ABC test, stating carriers are deemed employees unless the following is demonstrated:
(A) Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and
(B) Such service is either outside the usual course of the business for which service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
(C) Such individual is customarily engaged in an independently established trade, occupation, profession or business.
Many states’ Labor Departments have found that adult carriers do not meet all three parts of the ABC test. Specifically, they have taken the position that adult carriers are not free from direction and control of the newspaper and are not engaged in an independently established trade. However, Labor Departments have often found that carriers that independently deliver for more than one publisher typically satisfy the requirement that they are engaged in an established trade or business.
When a Labor Department rules that an adult carrier claimant is eligible for unemployment compensation, newspapers must pay the cost of those benefits. There have also been instances where states have directly targeted newspaper companies and have completed audits of their independent contractors. These audits usually cover a period of three to five years and lead to an assessment for amounts due for the unemployment insurance cost.
Some tips and strategies to help support the independent contractor relationship:
- Use an attorney to help develop the contract and specifically, one that has experience with the newspaper carrier independent contractor issue.
- Do not set up work hours. When a certain time frame or work hours are established, this is an indication of employee status.
- Payment should be based on services performed and not hours worked.
- Carriers should provide their own materials and transportation.
- Limit oversight; too much oversight indicates employer control.
- Limit training on how to do the job; independent contractors will ordinarily use their own methods.
- An independent contractor should be exposed to the commercial risk of potential profit or loss.
- An independent contractor should have the right to substitute another carrier in their place.
- Carriers should be able to make their services available to other customers; for instance, carriers may deliver for more than one publisher.
Richard Snyder can be reached at Email or 215.441.4600.