Maine Says Flooring Companies Should Pay Subcontra

Portland MI, April 8--Andrea and Robert Knight have run Knight's Flooring for eight years. She owns the business, he does most of the installations. When work gets too busy for him to handle alone, they bring on subcontractors, according to the Portland Press Herald. The subs have their own tools and even use their own glue or nails to install the flooring a homeowner bought from Knight's, which is based in Windham. These workers are considered independent contractors; Knight's doesn't pay income-tax withholding or workers' compensation insurance premiums. They also don't pay unemployment tax, a state levy that funds the state's unemployment benefit program. Apparently, that last one's a problem, though. The state recently determined that Knight's and other flooring companies that use subcontractors should be paying unemployment taxes on their wages. Under state guidelines, the subcontractors are considered employees of the flooring companies for unemployment-tax purposes. Andrea Knight and others in her sector are, frankly, floored. She just got a $10,000 bill for two years of back unemployment taxes. "The state is trying to hit us with a tax that we are no way responsible for, unemployment tax on subcontracted labor," said Knight. "They're trying to tell us that anybody who does a job for us is our employee." There are different guidelines laying out who must be considered an employee for each type of obligation -- income, workers' compensation and unemployment. The guidelines for unemployment, called the "ABC Test," contain three checks to determine if a worker is an employee. The first one addresses whether a subcontractor is "free from control or direction" by the company, and that's the sticking point in Knight's case, said Andrea Knight. The state cited the fact that Knight's tells the subcontractors where to go to install flooring as a form of control, she said. "Because we tell these guys where to go, they're our employees?" said Knight. "How else are they going to get to the job?" Adam Fisher, spokesman for the Department of Labor, which includes the Bureau of Unemployment Compensation, said that there may be some confusion over unemployment tax because of the different guidelines used for different taxes. "We are working on an educational campaign. This isn't a new law, it's been around for a very long time," said Fisher. Fisher said his department does give employers brochures on independent-contractor issues. He added that companies only had to pay unemployment taxes on subcontractors if the subs are sole proprietors. If the subs are incorporated, the hiring companies don't have to pay unemployment tax. Knight said other flooring businesses have come under scrutiny. Fisher said the department was looking at the entire construction industry, top to bottom. Debbie Estes of Ralph Estes & Sons, a flooring business in Standish, recently got a bill for $300 in back unemployment taxes. She contested it at an administrative hearing, and got the impression they weren't going to win. Now that she knows she's on the hook for the taxes, she'll pay them, said Estes. But she has a problem with paying back taxes when the state wasn't demanding them in the past. "Nothing was ever explained or announced, I just don't think it's right they go back on you on things you didn't know you owed," said Estes. John Geismar, an attorney with Bonneau & Geismar in Lewiston, represented Estes at the hearing and has been hired by Knight to represent her at her own appeal. "People like Knight's have been running (their businesses) believing they're run by the rules. This comes as quite a shock," said Geismar. "Is it a change in rules? No. Is it pushing the envelope? Yes." Geismar said the installers are "quite fiercely independent," and don't want to be perceived as employees.