Contract Labor: An Opinion

Posted on May 1, 1987 by Richard Hundley, president, Limousine Connection

I read with interest several articles in your recent issue and was struck by some statements in the panel discussion with reference to the different ways of making this business profitable as, certainly, that is the name of the game I agreed with many of the suggestions and methods of achieving this goal, except for one subject that can not only affect profitability but, in several cases recently, the survival of a company.

I started our business in 1978 and, during discussions with my attorney, the subject of “contract labor” with reference to employees, particularly chauffeurs, was explored. The definition of contract labor then, as now, does not apply in this situation, I was informed that as long as the chauffeur is using your equipment, and you are directing his or her activities as to where and when the equipment is to be used, the contract labor arrangement is not applicable.

As to how this affects profitability, it is certainly an expense to pay payroll taxes, unemployment benefits, and seemingly endless expenses connected with employees, ad infinitum. However, the benefits of trying to avoid these costs of doing business do not justify the possible consequences. For example, I have been advised that if the IRS finds that you have not been withholding taxes from your employee’s earnings, and that employee has not paid his taxes out of the gross monies you have paid, the employer, are liable for every dollar and this is retroactive from the beginning of employment. This principle also applies to payroll taxes, unemployment funds, disability funds, etc. (Both state and federal.)

The livery business has mushroomed over the past few years and is still growing. With this increased visibility comes increased scrutiny by various government agencies. This is not some theatrical scenario, as I personally know of two local companies that are going through monetary problems due to the contract labor theory, and of another company in Washington, D.C. that went out of business as a consequence of doing business on that basis.

I have a feeling that this method of doing business is quite widespread, particularly with small or new operations.

Another cost some companies are avoiding is carrying Workman’s Compensation. If an employee is injured on the job and you don’t carry this coverage, he or she can, to coin a phrase, “Put you away!”

The costs for these coverages and taxes certainly affect profitability but, if an operator is in this business for the long run, these are things to consider.

Richard Hundley is President of The Limousine Connection in North Hollywood, CA. The Limousine Connection is in its ninth year, and the company currently has twelve vehicles. The Limousine Connection was profiled in the first issue of Limousine & Chauffeur.

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