[Case Study] Pet Sitter Audit: Your Independent Contractors Are Not In Compliance.

32nIn our Case Study Audit series we will go under the hood of pet sitting businesses and do what no one else is doing in the industry. Find out why companies were audited, how they survived, and their reflections looking back. We are so thankful to these companies for helping us to put truth to all of the rumors that fly around.

This pet sitting business owner chose to remain anonymous for personal reasons. We appreciate them stepping out to help ahead some light on these audit case studies. Interesting things to note about this particular study is that it was another state audit. The state was looking at this companies ICs and ruled that they were improperly classified. In the end, the monetary penalty was so tiny that it worked out in favor of the business owner.

 

BEFORE THE AUDIT:

Do you want this to be anonymous or do you mind telling who you are? I would prefer to stay anonymous

Do you want this to be anonymous or do you mind telling who you are? I would prefer to stay anonymous

When did you start your business? Jan 2009

Tell us if you had legal council advise you on how to set up and what was right and proper (accountant and lawyer) Yes I had advisory on how to set things up

Approximately, what was your annual revenue at the time?  Alternatively, would you consider yourself a small (Under 100K) medium (100-250K) or large (250K+) company?   Very small (under 50k) – Audit was only 1 ½ years after I opened

Did you have ICs or employees at the time?  ICs

How long did you have staff and what made you choose that classification of workers?  When we started out with ICs, that seemed to be the industry practice and the easy way to do it.  We had been thinking about making the transition to employees when the audit occurred.

Were you ever afraid of being audited? Was it ever in the back of your mind? Absolutely!  I was very aware there was a fine line between ICs and employees

TELL ME ABOUT YOUR AUDIT:

How were you notified that you were being audited? What department audited you? How long did the entire process take?  We were notified via a phone call and letter.  The state department of labor is who audited us.  The entire process took about 3 months.

What was their reasoning for auditing you?  One our our former ICs was laid off from another job that she had.  She filled out unemployment paperwork and listed us as an employer.

Tell us about the help that you had going through the audit. Did your lawyer, accountant, another agency/advisor help guide you through it? I had our corporate office (I am a franchisee) advise me as well as my accountant.  

What did they require from you throughout the audit? They interviewed me as well as the IC in question.  They asked for documentation to show how she was paid.

Did the agency involve your staff? only the IC in question

How did you feel throughout the process? What impact did it have on your life? Your family? Your business?   I was extremely stressed out.  It definitely had an impact on my life at the time.  

When you submitted the evidence they requested, how sure were you that you were going to pass through with flying colors? I was very unsure!

AFTER THE AUDIT:

What was the finding of the audit? They found that we were not in compliance. According to them, we were out of compliance due to the fact that our ICs did not carry their own workers compensation insurance.  That was their main deciding factor.

If you had to make changes, how did you go about making them and what were they? Since we had been looking at switching to employees anyways, we made the leap.

Did you have to pay back taxes, penalties, fines, interest, etc? How were you able to afford it all? How long did you have to pay them? Luckily we only had to pay unemployment tax on the IC that was in question.  Ended up being about $30 (seems like such a little amount for the time the DOL put into this!)

Tell me about how you feel about that audit now. Are you happy or sad that you went through it? Did it make you better? I’m glad that it happened early in our business and we were not more established.  I’m thrilled that we are with employees now.  I can sleep at night!

What advice would you give to other pet sitters to try NOT to be audited?  Talk to your local department of labor on their requirements for an IC

If you knew then, what you knew now, is there anything you would have done differently? During the audit?  I don’t think there is anything different I could have done. From the beginning I would have just started with employees.

WHAT DO YOU THINK?

I can’t help but thinking that if this business had been bigger how much more of a headache it would have been. The business had only been generating less than $50K which goes against some of the speculation I have heard. “Oh the agencies don’t care about me because I am so small”  Evidently, based on this example, they do.

It was especially interesting that the reason why they were not found in compliance was because the independent contractor didn’t have their own workman’s compensation policy. Clearly this must have been in a state where WC is required. How many independent contractors do you know that will take out their own workman’s compensation policy? This actually reminds me of one of the 18 real reasons why to switch your independent contracts to employees. 

In any case, what did you think? What did you learn from this? Can you relate? Sound off below, and at very least thank this wonderful business owner for taking the time to help brings hard facts to better our industry!

 

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