Contractors Center Point

Classify Workers Correctly

Chances are, your construction business hires subcontractors, rather than employees, to perform some of the work. These arrangements obviously save your company a lot of time, money and headaches. Take a look at some of the recordkeeping and financial differences:

With an Employee ...	With an Independent Contractor ...
You must pay the employer's half of FICA, as well as federal unemployment tax (FUTA).	You generally don't have to withhold taxes from the worker's pay, you don't owe the employer's portion of FICA and FUTA, and you don't have to pay workers' compensation.
You are required to withhold federal income tax and the employee's half of Social Security and Medicare (FICA).	It is easier to engage workers for specific, short-term assignments so tailor work crews to fit your slow and busy seasons.
You must issue a W-2 form to the employee and send copies to the IRS.	You must issue the worker a Form 1099-MISC and file copies with the IRS if you pay the person $600 or more during the year.
Depending on your company's policies and state and federal laws, you must generally provide fringe benefits, such as health insurance, retirement plans, sick days and paid vacations.	You are not required to provide fringe benefits. Subcontractors are responsible for keeping their own records, paying their own income and self-employment taxes, and providing their own health insurance.
You are generally required to carry workers' compensation insurance.	You can reduce exposure to some types of legal actions, such as wrongful termination lawsuits.

 

When you compare the two types of workers, hiring subcontractors is a no-brainer. But make sure your independent workers really qualify for this status under law. Your company can pay a heavy price if you treat an employee as an independent contractor without having a "reasonable basis" for doing so. The IRS routinely "reclassifies" contractors as employees and the costs can be devastating for business owners. You can be required to pay a fortune in unpaid federal payroll taxes, interest and penalties.

Tracking Tools Can Increase Productivity

In most industrial settings, tracking tools for use is a way of life. The movement and tracking of tools from location to location, whether on a construction site or in a manufacturing setting, has been a stumbling block to efficiency for many years. Now, more than ever, with construction margins ever so squeezed, tracking tool movement can limit loss and maintain productivity.

Historically, tools have been tracked manually. This is very labor intensive and causes a number of inefficiencies:

 

• Loss of inventory and productivity of employees looking for tools
• Profit loss due to losing or misplacing high value tools and equipment
• Theft of small tools

Altogether, these inefficiencies result in decreased revenues and increased costs to the company, construction project and ultimately, the customer.

 

Changes to OSHA Administrative Penalties

Effective October 1, OSHA implemented several changes to its administrative penalty calculation system. These changes are a response to the fact that many of the agency’s current penalty adjustment factors have been in place since the early 1970’s, resulting in penalties which are often too low to have an adequate deterrent effect. These dministrative penalty adjustments will be made to several factors that impact the final penalty amount. Here is a brief description of those changes:

 

History Reduction: The time frame for considering an employer’s history of violations has expanded from three to five years. An employer who has been inspected by OSHA within the previous five years and has not been issued any serious, willful, repeat, or failure-to-abate citations will receive a 10% reduction for history.

History Increase: An employer that has been cited by OSHA for any high gravity serious, willful, repeat, or failure-to-abate violation within the previous five years will receive a 10% increase in their penalty, up to the statutory maximum. Employers who have not been inspected and those who have received citations for serious violations that were not high gravity will receive neither a reduction nor an increase for history.

Repeat Violations: The time period for considering the classification of repeated violations has been increased from three to five years.

Severe Violator Enforcement Program (SVEP): High gravity serious violations related to standards and hazards identified in the SVEP will not normally be grouped or combined, and may be cited as separate violations, with individual proposed penalties.

 

Project Risk Mitigation and Management

The identification of construction project risks before the start of a project will result in the opportunity to implement procedures to mitigate against those risks.  This can lead to effective project management which will ultimately help to ensure project deadlines are met and increase profitability of the project.

 There are several different risk categories that can apply to all different types of construction projects:

1. The inability to fulfill professional services
2. Default of contractors and/or suppliers
3. Delay in permits or approvals
4. Environmental contamination or other unforeseen conditions

 

The following are ways to mitigate the risk of the inability to fulfill the contracted professional services:

 

1. Use the contract to allocate risk and contractually limit the contractors damages
2. Require equipment suppliers to agree in writing regarding their performance
3. Define key milestones of the project within the contract