In the spring, the owner of Yoga Sol was facing a massive tax bill for unpaid unemployment and Social Security taxes based on the income of instructors at her studio at 210B St. James St. In two rounds of hearings at the Missouri Department of Labor and Industrial Relations, Sweitzer prevailed in her argument that the instructors were independent contractors and she was not responsible for the taxes.
She was notified Thursday of the final decision by the Labor and Industrial Relations Commission.
“It has been a few thousand dollars and a lot of headaches and stomachaches and time, but I had a good outcome,” Sweitzer said Monday.
The labor department, responsible for enforcing state and federal employment laws, has been cracking down on “worker misclassification” since January 2010. A change in enforcement strategy dramatically increased the number of misclassified employees found in audits, from 1,007 misclassified workers at 202 employers in 2009 to 11,233 at 1,531 employers in 2012, the year Sweitzer received notice of her alleged violations.
The number of cases dropped last year, with 5,900 misclassified workers identified at 990 businesses.
Violations of worker classification rules carry a heavy fine — $50 to $1,000 for each missed tax return plus a penalty of as much as 25 percent of the unpaid taxes in addition to the tax itself.
The Division of Employment Security initially argued that all of Sweitzer’s instructors were employees. In June, an appeals tribunal ruled that only two, Gretchen Chudy and Sarah Wells Kohl, were employees based on the IRS 20 Factor Test designed to determine whether a person is an employee or an independent contractor.
Chudy was an instructor who did not have all the certifications held by the 15 other instructors. Kohl is an instructor who wrote the company newsletter and performed other minor duties as “manager” of Yoga Sol.
In Chudy’s case, the commission noted that the appeals tribunal found the other instructors were contractors and that certification should not have been an issue. For Kohl, the commission found that 11 of the 20 factors showed she was an independent contractor, eight favored a decision she was an employee and one was not applicable. The factors test such things as the level of control over work activity, including where and when the work is performed. Continue reading >>