“Elderly May be Employers of Home Health Workers for Unemployment Tax” by Frank C. Carnahan
In a 2001 case, the Missouri Court of Appeals, Western District held that two elderly individuals were “employers” liable for unemployment security contribution for their home health workers. Helen Rose Klausner, v. Brockman and Division of Employment Security, and Ed Hanus, v. Jones and Division of Employment Security, Nos. WD 59236, WD 59237, 58 S.W.3d 671 (MO App 2001). The Court of Appeals found that “[i]n reality, [the “Supervisor/Business Owners”] never had a going business of their own. It was devised and implemented by [the client’s trustee/attorney]. They never advertised or sought other clients. They had no bonding, liability or workers compensation insurance, phones, or business cards. All of the workers were paid directly by [the client’s trustees] based upon receipts and time sheets they were required to submit.…The [Elderly Client] had a right and did to a large degree control the performance of these individuals as they rendered the requested services.”
Helen Rose Klausner and Ed Hanus are two elderly individuals who required personal health care services at their homes. Each had a trust to provide for their care, with Maurice Weingart andWilliam Fletcher as Ms. Klausner trustee, and William Fletcher as Mr. Hanus trustee. In 1997, Mr. Fletcher arranged with Burnetta Jones, a full-time of a nursing home employee, to provide home health care services for Mr. Hanus in addition to her work at the nursing home. In 1998, Mr. Fletcher arranged with Ms. Jones and Janet Brockman, Ms. Jones’ co-worker at the nursing home, to also provide care to Ms. Klausner at her home. Mr. Fletcher, an attorney, prepared two “independent contractor” contracts between the trusts and Ms. Jones and Ms. Brockman, doing business as “Loving Home Care Service.” He also prepared a fictitious name registration for Ms. Jones and Ms. Brockman to register their “partnership” called “Loving Home Care Service” with the Missouri Secretary of State’s office. Neither Ms. Jones nor Ms. Brockman understood the meaning and consequences of designation as independent contractor. Mr. Fletcher also prepared a “Contract with Independent Contractor” to be signed by the workers that Ms. Jones and Ms. Brockman were to bring in at various times to assist with their “business” in providing services to Mr. Hanus and/or Ms. Klausner. The workers were paid by the hour on a weekly basis directly by Mr. Hanus’ and/or Ms. Klausner’ trusts as an unpaid “payroll service” pursuant to the contract. Ms. Jones and Ms. Brockman also split the difference between their workers’ hourly wage (between $8.50 and $10) and the maximum wage allowed for in the contracts (between $10 and $12) as a “supervisory fee”, which was Mr. Fletcher’s idea and which he deemed to be the women’s “profit.” There were no withholding from the workers’ checks, and Mr. Fletcher’s son was paid to prepare IRS Form 1099–Misc for each worker.
The Division of Employment Security (“Division”) investigated Loving Home Care Service, Ms. Klausner, Mr. Hanus, Ms. Brockman and Ms. Jones to determine who, if anyone, was responsible for unemployment contributions for the workers under the Missouri Employment Security Law. On July 26, 1999, the Division found that Ms. Klausner and Mr. Hanus were liable as employers. The same workers were involved and fundamentally identical individual decisions were issued, and the Division appears to have treated the cases as consolidated.The Appeals Tribunal affirmed the Division’s referee’s findings, and the Commission adopted the Appeals Tribunal’s decisions. Ms. Klausner and Mr. Hanus appealed to the Missouri Court of Appeals.
Ms. Klausner and Mr. Hanus argued that the Commission erred in using the IRS twenty factor test for common law employment set forth in Rev. Rul. 87–41 which was superseded by the IRS Handbook 104.6 (April 21, 1999), Employment Tax Handbook (“Handbook”), Chapter 5, “Technical Guidelines for Employment Tax Issues”, which sets forth three broad categories under which the IRS examiners evaluate the facts to determine whether workers are employees or independent contractors, and could not be used. The Court of Appeals held that the IRS twenty-factor test has not been abolished and may still be used to assist in determining whether a worker is an employee or an independent contractor. The Court found that the IRS did not intend to make the twenty-factor test obsolete and that grouping of the twenty factors into the three categories represents a change in organizational structure to provide clarity and reflect the longstanding recognition by the IRS that the twenty factors are not all-inclusive, and the twenty factors remain clearly relevant to the inquiry.
Ms. Klausner and Mr. Hanus also argued that I.R.C. § 3506(b), exempts “sitters”. A “companion sitting placement service” means a person (whether or not an individual) engaged in the trade or business of placing sitters with individuals who wish to avail themselves of the sitters’ services, and “sitters” means individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled. However, as noted by the Court of Appeals, 26 C.F.R. 31.3506(d) Scope of rules, states “The rules of this section operate only to remove sitters and companion sitting placement services from the employee-employer relationship … Thus, if, under Secs. 31.3121(d)–1 and 31.3121(d)–2, a sitter is considered to be the employee of the individual for whom the sitting is performed rather than the employee of the companion sitting placement service, this section has no effect upon that employee-employer relationship.”