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Higher Risks with Green Building


        Liability Exposures for Green Contractors

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One of the biggest questions contractors ask is why the risks of green building are so much higher than regular construction. The answer is because of the LEED certification process and higher demands for ROI. Building owners anticipate in advance what kinds of credits they will qualify for, and if the building is unable to attain promised certification in the end, they will not hesitate to file a claim. The bottom line is that green buildings have a much more concretely defined scale of success and failure, and that means you can easily be held responsible for unexpected shortcomings.

Also, building green is very expensive. If owners are going to pay the extra money to go green, they want to see the return on that investment. With green buildings, this is a very quantifiable investment. If the heating and electricity bills are not as low as promised, clients will not be happy with the building.

The best thing you can do to protect yourself from risk is to be open and honest.

     • Create marketing materials for your company with reality in mind, rather
     than making lofty promises.

     • Do not allow clients to have high expectations for things you are not
     sure you can deliver on.

     • Pay attention when drafting or signing contracts to make sure the
     language accurately reflects expectations and realistic goals.

     • Improve your project management process to more clearly define your
     company’s goals, requirements and limits.

     • Seek insurance coverage for green-specific areas, especially for your
     green services and warrantees on green projects.

Green building is a growing trend, as businesses want to do their part to help the environment while lowering energy costs at the same time. Plus, green building is becoming increasingly more difficult to avoid because federal, state and municipal governments are starting to mandate it for new residential and commercial construction.

Jumping into the green movement might seem like a lucrative and logical step for your business to take. Before you go green, educate yourself to avoid costly lawsuits and common liability exposures for those engaging in green construction.


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Independent Contractors Protection against Misclassification:


        Employee or Independent Contractor?

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Companies wishing to hire an independent contractor should be aware of common mistakes in order to avoid potential penalties. An independent contractor agreement is a good first step. This document should contain a description of the services the individual will perform, how long the task should take and how the person will be paid. This agreement can serve as evidence of the person’s intended status with the employer should an investigation ever arise.

It is also wise to screen independent contractors before hiring them to complete a project. It’s best to develop a formal interview questionnaire to obtain the information needed to prove the person’s status. Here are some good questions to ask:

1. Do you have a legal entity established for your business?

2. Have you filed a fictitious business name (doing business as…)?

3. What is the address and telephone number of your business?

4. How many employees do you have?

5. What professional licenses do you hold?

6. How do you market yourself to obtain new business?

7. What type of equipment and supplies do you currently own to complete work?

8. What additional equipment and materials will you need to complete the task and how do you plan to obtain said materials?

9. What type of insurance coverage do you possess to cover your business?

10. Can you provide professional references?

While hiring an independent contractor provides many advantages to companies, it imperative that employers document and update records that can prove an individual’s status as an independent contractor. The pivotal detail to remember is that as the employer’s control increases, the likelihood that the individual can be classified as an independent contractor decreases. For this reason, it pays to be highly scrupulous when deciding to hire someone as an independent contractor.

Hiring an independent contractor offers employers many advantages. Unlike for traditional employees, employers do not pay taxes on independent contractors’ wages, and are not expected to provide benefits. Employers often save 30 to 40 percent on labor costs by using independent contractors. In addition, as independent contractors are generally hired for a specific period or project, employers have no obligation to rehire them after each contract period or project is complete.

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Independent Contractors Determining Classification: Labor Relations


        Employee or Independent Contractor?

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The National Labor Relations Act (NLRA) specifically excludes contracted persons as employees. As a result the National Labor Relations Board (NLRB) also developed several determinants to decide whether an individual is considered an employee or an independent contractor. The NLRB’s determinants focus on whether the employer has the right to control and provide direction for the work completed by asking:

     • How integral is the task to the business (part of
     continuous product or specialized assistance)?

     • How is the individual compensated (wages versus
     contracted amount)?

     • Does the employer have the right to discipline the individual?

     • To what extent can the employer supervise the work?

     • What is the nature of the skill required to the complete the
     tasks? Is this skill specialized and not commonplace within the company?

     • Does the individual work for other clients or advertise his or her
     services
as a business?

     • Can the individual profit from completing the task?

Hiring an independent contractor offers employers many advantages. Unlike for traditional employees, employers do not pay taxes on independent contractors’ wages, and are not expected to provide benefits. Employers often save 30 to 40 percent on labor costs by using independent contractors. In addition, as independent contractors are generally hired for a specific period or project, employers have no obligation to rehire them after each contract period or project is complete.

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Independent Contractors Determining Classification: Wage and Hour Issues


        Employee or Independent Contractor?

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Under the Fair Labor Standards Act (FLSA), the federal courts apply a six point test to determine whether an individual is considered an employee or an independent contractor. This test also focuses on how much control an employer has over an individual. Under the FLSA, federal courts consider the following:

1. Nature and degree of control the employer has over the individual

2. The individual’s opportunity for profit and loss

3. The individual’s investment in the business

4. The length of the relationship between the company and the individual

5. The skills needed to perform the task

6. The amount in which the individual’s work affects the company’s business

Hiring an independent contractor offers employers many advantages. Unlike for traditional employees, employers do not pay taxes on independent contractors’ wages, and are not expected to provide benefits. Employers often save 30 to 40 percent on labor costs by using independent contractors. In addition, as independent contractors are generally hired for a specific period or project, employers have no obligation to rehire them after each contract period or project is complete.

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Independent Contractors Determining Classification: Retirement Issues


        Employee or Independent Contractor?

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The Supreme Court has ruled that the common law test also determines whether an individual is considered an employee for the purpose of the Employee Retirement Income Security Act of 1974 (ERISA), stating that it would consider the following in determining if someone is eligible for retirement benefits:

     • Employer rights to control how and with what resources tasks are completed

     • Skills necessary to complete the task

     • Materials used to complete the task

     • Locations at which the work is done

     • Length of the relationship between the company and the individual

     • Employer ability to assign additional tasks to the individual

     • Amount of discretion concerning when and for how long an individual will work

     • Payment methods

     • Employer involvement in hiring and paying assistants

     • Whether tasks are considered part of the individual’s regular business

     • Whether the individual provides services as part of his or her own business

     • Whether employee benefits are allocated to the individual

     • Whether the employer pays taxes on behalf of the individual

Hiring an independent contractor offers employers many advantages. Unlike for traditional employees, employers do not pay taxes on independent contractors’ wages, and are not expected to provide benefits. Employers often save 30 to 40 percent on labor costs by using independent contractors. In addition, as independent contractors are generally hired for a specific period or project, employers have no obligation to rehire them after each contract period or project is complete.

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Independent Contractors Determining Classification: Categories of Evidence


        Employee or Independent Contractor?

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Since common law factors change, the courts and the IRS have grouped the preceding questions into three main categories, known as the “categories of evidence.” These categories are behavioral control, financial control and type of relationship.

Behavioral control Individuals should be classified as employees if the employer assumes control over their instruction and training:

     • Instruction – an employee is generally told:

               o When, where and how to work

               o What tools or equipment to use

               o What workers to hire or to assist with the work

               o Where to purchase supplies and services

               o What work must be performed by each individual

               o What order or sequence to follow

     • Training – an employee may be trained to perform services in a
     particular manner.

Financial control The extent to which the individual carries the following financial burdens or privileges can dictate whether he or she is an employee or an independent contractor:

     • Cost of work expenses and reimbursements

     • Contributions and significant company investments

     • Offering services to the general public

     • Manner of compensation and payment

     • The possibility for making a profit or sustaining a loss after the
     work is complete

Type of relationship The following can also be used to classify an individual:

     • Written contracts describing the intended relationship

     • Whether the worker receives employee benefits

     • The permanency or length of the relationship

     • How integral the services are to the company’s principal activity

Hiring an independent contractor offers employers many advantages. Unlike for traditional employees, employers do not pay taxes on independent contractors’ wages, and are not expected to provide benefits. Employers often save 30 to 40 percent on labor costs by using independent contractors. In addition, as independent contractors are generally hired for a specific period or project, employers have no obligation to rehire them after each contract period or project is complete.

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Independent Contractors Determining Classification: Common Law Control Test


        Employee or Independent Contractor?

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The IRS uses a version of the common law control test to determine whether an individual is an employee or an independent contractor. If the majority of the factors in the control test favor the existence of an employer-employee relationship, then the individual should be classified as an employee (or vice versa).

IRS Factors Used to Determine Control

Answering the following questions in the affirmative suggests that an employer contractor relationship exists:

     • Can the individual earn a profit or suffer a loss from doing the task?

     • Does the individual offer services to the public?

     • Does the individual provide his or her own tools, materials, office space
     or supplies?

     • Is the individual paid when the job is completed?

     • Does the individual provide his or her services for more than one company
     at a time?

     • Does the individual have the authority to hire others, and is he or she
     responsible for their wages?

     • Doe the individual set his or her own working hours?

     • Does the individual cover his or her own travel and business expenses?

Answering the following questions in the affirmative suggests the existence of an employer-employee relationship:

     • Does the individual have a long-term relationship with the company?

     • Does the individual work full time for the company?

     • Does the individual receive instructions on where to work?

     • Can the individual quit without being liable for breaking a contract?

     • Is the individual is paid by the hour?

     • Does the employer instruct the individual on how to perform his or
     her job?

     • Has the individual received training for the job he or she is to perform?

     • Is the individual required to give progress reports on the work completed
     throughout the project?

     • Is the individual’s work considered an important aspect of the company’s
     daily operations?

Other government agencies, including state agencies, have developed their own systems to determine an individual’s status within a company. Employers should contact these agencies directly for specific information.

Hiring an independent contractor offers employers many advantages. Unlike for traditional employees, employers do not pay taxes on independent contractors’ wages, and are not expected to provide benefits. Employers often save 30 to 40 percent on labor costs by using independent contractors. In addition, as independent contractors are generally hired for a specific period or project, employers have no obligation to rehire them after each contract period or project is complete.

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Advantages/ Disadvantages of Hiring Independent Contractors


        Employee or Independent Contractor?

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Advantages

Labor cost reduction – Companies can get the same or better services for less money because there are no employment add-on costs.

Supplies and office space cost reduction – Independent contractors provide their own equipment, materials and office space.

Liability reduction – Employers are not automatically responsible for any injuries independent contractors may sustain while providing their services or for wrongful termination, job discrimination or sexual harassment lawsuits. However, because many of these areas are highly regulated by state and federal law, employers may still be liable under certain circumstances. Contact legal counsel for more information.


Disadvantages

Misclassifying employees as independent contractors is potentially a serious liability for employers. Typically, misclassifying an employee can expose employers to federal sanctions and investigations, state audits and penalties, and unexpected unemployment and workers’ compensation lawsuits.

Hiring an independent contractor offers employers many advantages. Unlike for traditional employees, employers do not pay taxes on independent contractors’ wages, and are not expected to provide benefits. Employers often save 30 to 40 percent on labor costs by using independent contractors. In addition, as independent contractors are generally hired for a specific period or project, employers have no obligation to rehire them after each contract period or project is complete.

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Independent Contractors as Statutory Non-Employees


        Employee or Independent Contractor?

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There are two categories of statutory non employees: direct sellers and licensed real estate agents. These individuals are treated as self-employed for federal tax purposes if:

     1. Nearly all payments for their services as direct sellers
     or real estate agents are directly dependent on their sales
     or other output, rather than the number of hours they work

     2. Their services are performed under a written contract stating
     that they will not be treated as employees for federal
     tax purposes.

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Independent Contractor’s as Statutory Employees


        Employee or Independent Contractor?

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Generally, independent contractors must be classified as employees if they fall within any of the following four categories and they meet the criteria for withholding Social Security and Medicare taxes:

     • Drivers who distribute beverages (other than milk), meat,
     vegetables, fruits or bakery products, or who pick up and deliver
     laundry or dry cleaning, and who are either employer agents or are paid on commission

     • Full-time life insurance sales agents whose principal business activity is selling life insurance, annuity contracts or both, primarily for one life insurance company

     • Individuals who work at home on materials or goods that are supplied and must be returned to an employer (or its designated entity) when the employer also provides the specifications for the work to be done

     • Full-time traveling or city salespersons who work on behalf of an employer and turn in orders to that employer from wholesalers, retailers, contractors or operators of hotels, restaurants and other similar establishments. The goods sold must be merchandise for resale or supplies for use in a buyer’s business operation. The work performed for the employer must be the salesperson’s principal business activity.

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