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Roofing company challenges state’s efforts to collect unemployment taxes

Posted at 12:23 PM, Dec 22, 2022

An Iowa roofing company claims that because it doesn’t treat its workers as employees – requiring them to use their own cars and tools, and denying them training and benefits – it’s not liable for taxes as an Iowa employer.

The case illustrates how some companies attempt to avoid certain tax liabilities by denying workers many of the benefits that are traditionally afforded company employees.

Contreras Roofing, run by Leonel Contreras of Des Moines, filed a petition in Polk County District Court this week, seeking judicial review of an administrative law judge’s decision concerning the company’s status as an employer.

Court records indicate Iowa Workforce Development audited the company at some point in the past two years, reviewing its practices as far back as 2017. 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, are 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.

Also, he said, it “defies explanation” as to why the workers would embark on a series of jobs without first knowing, through some sort of contractual arrangement, what they would be paid for their labor.

The company sought a rehearing on the matter, calling IWD’s position “ridiculous and unconstitutional.” IWD denied the request.

In the petition for judicial review, the company’s attorney, Valerie Cramer, says only that the IWD audit is “unfair” in that it extended back to 2017. “They did not get wages, no time clock, no control,” the petition says of the workers.

IWD has yet to file a response to the petition.

Iowa Capital Dispatch is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Iowa Capital Dispatch maintains editorial independence. Contact Editor Kathie Obradovich for questions: Follow Iowa Capital Dispatch on Facebook and Twitter.

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