Radio hosts fail to query State House candidate after he tells them state audit led to his business failures
Even if you’re a die-hard Tea-Party radio host, you’d think you’d try to clarify things when an ideologically-sympatico political candidate tells you on the air that he abandoned his business because of the Colorado Department of Labor’s efforts to enforce employment rules.
That’s what Colorado State House candidate Brian Vande Krol told KLZ’s Grassroots Radio Colorado Jan. 20:
In fact, I’ve heard you guys talk about unemployment insurance before, and it just so happens that as of the first of the year, my swimming coaching business basically is no more. I still call it a business, but because the Colorado Department of Labor is pursuing what they call misclassified employees, the place where I coach said hey, we can’t have you here as an independent contractor. You can no longer be a businessman here. You have got to be an employee. So I’ve basically lost a business.
Obviously, there’s no proof here that Vande Krol did anything wrong, but how could you not wonder what happened, especially because this guy is running for the state legislature (HD 35). (He narrowly lost to Rep. John Soper in 2010.)
So I did the Grassroots Radio hosts’ job for them and called Vande Krol, and he answered my questions via email. (See his answers in their entirety below.)
Vande Krol believes he did nothing wrong.
For both of my businesses where I’ve run up against this problem, I absolutely meet the definition of independent contractor. I meet all nine of the requirements specified in Colorado Statutes for one business, and the preponderance (as also specified in statute) for the other business.
But, he wrote me, a Colorado Department of Labor audit of the business Vande Krol worked for apparently thought differently:
Despite that, one of the businesses I contract with was threatened with large taxes and penalties by an auditor who chose to interpret the statutes as she sees fit, presumably justifying her salary. She then negotiated the amount down to the point of being a nuisance, told the business they could take it to court, but precedence was on her side. The business paid the tax rather than hire a lawyer and risk further scrutiny by government agencies that are clearly overstepping their bounds. If this were done in the private sector, it would be called extortion.
The Colorado Department of Labor performs the types of audits to which Vande Krol refers to enforce state laws protecting workers.
Basically, if an employer classifies a worker as an “independent contractor” then the employer is not required to provide the worker the same protections as the employer would if it classified the worker as an “employee.”
These protections include unemployment insurance, for workers who get laid off, and workers’ compensation, covering injuries sustained on the job. Employers also contribute half of an “employee’s” Social Security tax.
If an “independent contractor” were not required to meet specific criteria, then employers would be free to pay all their workers as independent contractors, stripping them of worker protections that are now mandatory.
Vande Krol believes he met the definition of an “independent contractor,” but on the radio, his anger seemed to go beyond his specific case.
So I asked him if he believed the government should allow businesses to decide for themselves whether to classify workers as “employees” or “independent contractors” and therefore let businesses decide whether to pay for their workers’ Social Security taxes, workers comp, and unemployment insurance.
He answered that employers should be able to classify their employees as they see fit, and employees should likewise be able to classify themselves as they want to:
If a person is freely willing to give up the protections offered by an employer/employee relationship, he or she should be allowed to do so. If an employer is freely willing to give up the control offered by the employer/employee relationship, it should be allowed to do so. Of course, either relationship is based on the idea of a mutually beneficial exchange of service for compensation. Government interference in private contracting cannot eliminate the right of people to decide for themselves – it can only impede the ability to legally do so, and hamper meaningful job creation in the process.
Clearly, voluntary participation in workers’ compensation, unemployment insurance, and Social Security would mean major changes for these programs, and for society as we know it.
But Vande Krol writes, “If social security is a good deal for the individual, why is it not managed by individuals according to their individual needs?”
Below is Vande Krol’s entire written response to my questions:
Why didn’t you meet the definition of an independent contractor, under government regulations?
Let me clear up what appears to be a misunderstanding. This is about a government agency using broad regulatory and auditing powers to remove freedom of choice from the individuals of Colorado, adding unnecessary burdens to small businesses, and resulting in less real employment. For both of my businesses where I’ve run up against this problem, I absolutely meet the definition of independent contractor. I meet all nine of the requirements specified in Colorado Statutes for one business, and the preponderance (as also specified in statute) for the other business. Despite that, one of the businesses I contract with was threatened with large taxes and penalties by an auditor who chose to interpret the statutes as she sees fit, presumably justifying her salary. She then negotiated the amount down to the point of being a nuisance, told the business they could take it to court, but precedence was on her side. The business paid the tax rather than hire a lawyer and risk further scrutiny by government agencies that are clearly overstepping their bounds. If this were done in the private sector, it would be called extortion.
The other business I contract with decided to change me from a contractor to an employee simply to avoid the risk of audits and penalties.
Colorado statutes are already more restrictive than federal statutes regarding independent contractor status. However, Colorado statute does allow that a contract between businesses is sufficient to evidence independent contractor status. This provision that allows an individual to freely choose is ignored by the Colorado Department of Labor and Employment. According to the CDLE, 14% of workers in Colorado are “misclassified” as independent contractors. The CDLE is threatening to go after that 14%, which is a direct threat to their livelihoods and those that use their services. That’s one in seven workers. That’s not a recipe for expanding real employment in Colorado.
Now to your question. I do meet the definition of independent contractor. That did not prevent the CDLE from extorting money from one of my “employers”. Nor did it prevent the other from changing my status. In the second instance, employees are often more expensive than independent contractors because of government burden, so my employer reduced my compensation. I dropped my liability insurance since I’m now covered by their policy. The cost to provide that insurance is more than the revenue I typically generate outside of my contract with the employer, so I will also quit working outside of my relationship with that employer.
Do you think the government should require businesses to provide “employees” with worker’s compensation and unemployment insurance, as currently required? As you know, the government does not require businesses to do this for “independent contractors.”
My concern is that government is removing the right of people and businesses to freely associate on terms they choose. Worker’s compensation policies makes good sense for employees because they may not be covered for on the job injuries by other insurance plans. It’s good business sense as well – businesses limit their liability to an injured employee by providing worker’s compensation insurance. Independent contractors, however, freely give up access to worker’s compensation insurance and unemployment insurance. That independent contractor should be allowed the freedom to make that choice based on what’s best for them.
Do you think the government should be required to pay half the Social Security tax of their employees?
(I assume the intent of your question is “should government require businesses to pay half the social security tax of their employees”. That’s the question I’ll answer).
Businesses are the ones that write the checks, but they don’t pay the taxes. Social Security taxes are a business cost. Businesses pass costs on to their customers, employees, owners, shareholders or investors.
A more interesting question is about the recent “tax holiday” for social security taxes. Did the federal government point out that future benefits will be reduced by the tax holiday? Did they suggest or allow that individuals could invest more in their own social security retirements by not taking advantage of the tax holiday, and paying more than is required? If social security is a good deal for the individual, why is it not managed by individuals according to their individual needs?
Do you think the government should allow businesses to decide for themselves whether to classify workers as “employees” or “independent contractors” and therefore decide for themselves whether to pay for their workers’ Social Security taxes, workers comp, and unemployment insurance?
I believe that people are far better able to make decisions for themselves than the government. If a person is freely willing to give up the protections offered by an employer/employee relationship, he or she should be allowed to do so. If an employer is freely willing to give up the control offered by the employer/employee relationship, it should be allowed to do so. Of course, either relationship is based on the idea of a mutually beneficial exchange of service for compensation. Government interference in private contracting cannot eliminate the right of people to decide for themselves – it can only impede the ability to legally do so, and hamper meaningful job creation in the process.
These questions flow from your apparent view, expressed on the radio, that the government had no business telling your employer that you could not work there as an independent contractor.
Again, it was the employer who made the decision to change my status. They did so based on the threat of the CDLE to pursue one out of seven Colorado workers and their “employers”. I met the most important criteria – I provided my own tools, training, liability insurance, marketing, medical insurance, etc. However, I could not protect my employer from the danger of an overly aggressive audit by a government agency that was $500 million dollars in debt to the federal government in February of 2010.
The federal government pressured the CDLE to pay back loans for the Unemployment Insurance Trust Fund. The state legislature responded by raising rates on businesses who can ill afford it. These rate increases fall disproportionately on the businesses who have fewer unemployment claims. The CDLE is pursuing small businesses with their power of audit to coerce legitimate businesses to pay unemployment taxes that they do not owe. As a result, resources that could be used to expand hiring and boost the Colorado economy are being diverted to the federal government, and one in seven Colorado workers is directly threatened by CDLE.
That’s not a recipe for job creation.
Below is a partial transcript of Brian Vande Krol’s statement on KLZ’s Grassroots Radio Colorado, Jan. 20.
Brian Vande Krol: I’ve had a sky diving coaching business, a swimming coaching business. My first business was actually Paradise Rock Gym. That was probably the most capital intensive and labor intensive business. It actually set the standard for other climbing gyms across the country. I’ve got a floor installation business currently, quite a few businesses. I’ve always found things that I’ve really enjoyed doing and pursued those activities. In fact, I’ve heard you guys talk about unemployment insurance before, and it just so happens that as of the first of the year, my swimming coaching business basically is no more. I still call it a business, but because the Colorado Department of Labor is pursuing what they call misclassified employees, the place where I coach said hey, we can’t have you here as an independent contractor. You can no longer be a businessman here. You have got to be an employee. So I’ve basically lost a business. But now I count as a new hire in Colorado’s jobs statistics and so my experience of one person may not swing things one way or the other, but basically that’s probably the way it will work out. I’m a new hire in Colorado. That will show up somewhere, I assume, in their statistics. And I’m no longer a business owner for that particular business. …
KLZ host Jason Worley: What is your main platform?
My main platform is economic freedom. The founders told us all men are created equal, and that means no man was born to rule over another man. And out of that it unleashed two powers that changed the world forever: liberty and responsibility. And government’s responsibility is to secure the blessings of liberty. They’ve clearly gone way beyond that. They are hampering economic freedom, and that’s hampering job growth. It’s hampering economic development in Colorado. We have to change that. Like I said, it’s about economic freedom.