October 12/19; Volume 30/Number 9
By Steven Feldman
Coronado, Calif.—When the 42 members of the National Floorcovering Alliance met here last month, they were updated on some of the most critical issues facing all floor covering retailers, not the least of which was how the recent Department of Labor (DOL) guidance as to what constitutes an employee vs. independent contractor could affect them.
The DOL directive emphasized that a worker who is “economically dependent” on the employer should be treated as an employee. By contrast, to be regarded as an independent contractor, workers must be in business for themselves. The thought is this guidance will make it harder for flooring dealers to use subcontractors for installation. Dealers often prefer to use independents because contractors aren’t eligible for overtime pay, unemployment insurance or workers’ compensation, and they pay all Social Security taxes compared with employees, who split that cost with employers.
Jeff King, counsel to the World Floor Covering Association (WFCA) and a labor expert, advised NFA members on the new guidance, which he said is essentially a new interpretation of an existing law. “Retailers will have to adjust. Some will have to bring installers in-house and they will have to distance themselves from others. It would be extremely dangerous to have in-house and outside installers under this new interpretation.”
Installers must truly look like they are independent. “They must have some investment in what they do—just having tools is not sufficient. They need to have a tax ID number; they need to show they can make money independently, that they can reject work and not suffer the consequences, as well as work for other retailers.”
The other recent ruling that was discussed was the Department of Labor’s plan to make nearly 5 million more workers eligible for overtime pay. The minimum required salary for exempt employees is expected to increase from the current $23,660 per year to about $50,400 per year. These regulations would change the criteria for the so-called white collar exemptions, which can apply to managers and supervisors.
The administration has expressed its concern that many managers, particularly in the retail and service sectors, work substantially more than 40 hours per week without overtime pay. The increase to the minimum required salary would mean many managers would no longer qualify for the white collar exemptions. Employers would either have to pay overtime after 40 hours (based on an hourly rate of at least the minimum wage) or determine whether another overtime exemption could apply.
NFA dealers had mixed reactions. Jeff Macco, president of Macco’s Floor Covering Center in Green Bay, Wis., told FCNews this regulation will force retailers to be absolutely certain its subcontractors are passing the test. “The biggest challenge we face is the cost of workers comp insurance and other insurances we might have to pay if these individuals are deemed not to be subs and are called employees. It could be devastating. It could change the industry. We will have to re-price our floors; there is no way for us not to. Our subcontractor costs are in the millions of dollars on an annual basis. So if you add in the cost of insurance it would be devastating.”
Macco also believes the new $50,400 threshold for overtime pay is significant. “Again, we have to look at anybody we have who is in that range. Now they have to start punching a time clock. We have to make certain they are only working a 40-hour workweek. It’s not good. Those individuals want to work more because they want to earn more. And now we have to change the way we structure some of our people who are in that category. This is all a good example of government sticking its nose in business.”
Jay McDonnell, president of Custom Carpet Center in Buffalo, N.Y., agreed that two things working in tandem are potentially disastrous for businesses. And even compliance does not absolve a business from additional costs. “It’s kind of the Wild Wild West. We’ve been through audits before and have won both from a legal standpoint, but we don’t get reimbursed for the money it costs to litigate the audits.”
McDonnell agreed with King in that a company can no longer have both subcontractor installation crews and employee installation crews. “Those are the ones who will potentially be in trouble. How do you justify one vs. another to the IRS?”
Eric Mongradon, hard surface buyer, RC Willey, noted how corporate ensures the company is doing everything right in the way it handles installers, estimators, installation houses, etc. “The new ruling means we have to force our installers to open up installation houses or work for an installation house where they have an entity or a building instead of just a truck and tools. That will no longer classify them as a subcontractor. The other part of it affects those installers who work for us every day; we can’t do that anymore. If more than 75% of their income is derived from one source, they will be considered an employee by the IRS. We can bring on employees, withhold taxes and offer them benefits, but for what we would pay they wouldn’t work for us.”
Phil Koufidakis, president of Baker Bros in Phoenix, is less concerned about the aforementioned 75%. “I just don’t ask those questions. I don’t know if it’s 75%, 100%, 20%. I can’t ask a guy to open up his books and let me see if I am 75% of his income.”
He also questions the enforcement of the new guidance. “I think the rest of it has yet to unfold. I think it’s a wake-up call to make sure everybody is doing all they can, but I think Congress will get a push back on this whole thing. There is a lot more road in front of us. I just can’t see how they can enforce this the way they are talking. There would be no such thing as a subcontractor.”
Bob Hill, president of Floor Covering Associates in Chicago, was looking for clarification. “In Illinois we have something called the Employee Reclassification Act, which means if you have an installer on your payroll, anyone you hire to do installation work has to be classified as an employee because the government says you are in the business of installing flooring and therefore should be paying these people as employees. We have gotten around that by asking the installers if they would incorporate or become an LLC. Therefore, we need to find out from a federal standpoint if the person is ineligible to be an employee because he has his own corporation.
Specialty Vendor Showcase
One of the major initiatives the NFA has undertaken in recent years is the growth of its Specialty Vendor Showcase, held the day before The International Surface Event in Las Vegas. The brainchild of Sam Roberts, president of Roberts Carpet and Fine Floors in Houston, some years ago, the showcase has grown to nearly 40 vendors and has proven to be mutually beneficial for both the group and suppliers. Every vendor from 2015 has signed on for 2016 with an additional six joining the fray.
“We only have so many tables at the core vendor meeting, plus we can’t drive enough volume to justify the expense for the vendor,” Roberts said. “Take vacuums cleaners and moldings. Those guys could never justify being a core vendor. But that specialty vendor meeting is perfect for these more specialized suppliers because it is very reasonable for them to attend, and they’re at Surfaces anyway.”
Dave Snedeker, flooring merchandise manager for Nebraska Furniture Mart and president of the NFA, said this was a chance for the vendors that are selling two or three members to get in front of the balance. “From a member standpoint, we see products that may not have national penetration. Every member always picks up one or two vendors at each showcase.”
Roberts called the event “a great resource” for the group. “It does two tremendous things: It gives us additional leverage with a broader variety of vendors, and it also provides a really valuable prelude to Surfaces. So you can see all those guys, find out where your interest lies and go back and visit with them at Surfaces.”
Vendors benefit as well as they get exposure to many of the biggest dealers in the country. “Take a company like USFloors,” Roberts said. “They started out as a specialty vendor. They were small. We played a significant role in their growth. Now they are a core vendor to the NFA and sell to all 42 members.”
In other NFA news…
* With many NFA members understanding the need to diversify, particularly as it relates to cabinets, Phil Raby, president of The Raby Co. in Albuquerque, N.M., hosted a meeting about starting an NFA cabinet committee. “We have been in the cabinet business for three years,” Raby told FCNews. “It’s becoming very successful. We are finding many customers who come in looking for flooring are also looking for cabinets. We have put cabinets in four of our showrooms and have a dedicated cabinet person run it for us. We have cabinet salespeople on the floor. We have a fabrication unit that fabricates tops.”
* Every meeting brings about the discussion on whether one dissenting vote can block a prospective member from joining the NFA. In most cases this would come from a member seeking to protect his territorial rights. According to Snedeker, what the group needs are members who want to participate and share their ideas, not just looking to gain volume. “We want to maintain a climate of free-flowing ideas and not have to worry that we are sharing with direct competitors, so I don’t think we will ever change the ‘one no all no.’”
Roberts is one who takes a contradicting view. “I’m just against that as a matter of principal. We should never be in a position where we allow one person to decide something that may be detrimental to the group. I don’t think it’s democratic. People need to trust the group to do the right thing.”
* Sterling Carpet and Flooring in Anaheim, Calif., attended the fall meeting as a prospective new member. The 53-year-old business had the opportunity to join after Carpet Distributors departed the group, opening up the Orange County area. Co-owner Rich Mandel, who bought the business in 1987 with John Ertz, couldn’t stop raving about his first NFA meeting, as did his son, Dan, who is now running the business. “This has been a wonderful experience for my father and me. This group is full of dynamic people who are so forthright and transparent. We’ve always wanted to be part of it.”
Snedeker referred to Sterling as “a good fit. The vendors they support are all core vendors of ours. They have the right product mix for us. I received more words of encouragement for them than any potential new member from people who they do a ton of business with.”
* For the first time NFA members were asked to rate each vendor’s presentation during the traditional vendor roundtables. The idea is for vendors to bring their A game to the meeting. “We are going to go to some of these companies and let them know how they fared,” Snedeker said. “We may say, ‘Here are some of the things you did that made it more efficient for us.’ Or we may say, ‘Here are some ideas that may help in the future.’ We want to make sure everyone’s time is optimized.” Among the companies that scored well with members were Tuftex, Dixie and MS International.