BY PETER CHRISTENSEN
are special events, occurring most frequently on
holidays. In fact, 80 percent of the company’s
business occurred on the Fourth of July.
Therefore, many pyrotechnicians only provide
their services a few days each year and hold
other “real” jobs from which they earn their
Given the unique character of the work, Garden
State treated its 100+ pyrotechnicians as
independent contractors. The company didn’t
direct the details of how these pyrotechnicians
set up their shows, and the contractors
never did any work for the company at its
manufacturing plant. Their services were
limited to handling shows out in the field.
Garden State had been audited in the past
by the IRS, who had reviewed its practice of
compensating pyrotechnicians as contractors,
specifically confirming in writing that the
classification was acceptable for federal tax
purposes. Yet, several years later in 2013, the
New Jersey Department of Labor challenged
the company’s practice for purposes of state
unemployment and disability contributions,
demanding more than $30,000 for the unpaid
contributions and penalties. The Department
of Labor justified its position on the basis that
New Jersey’s classification test is different and
more stringent than the test for federal tax
purposes. The state Labor Commissioner ruled
in favor of the Department of Labor and the
penalties were imposed.
This result should have been improbable. How
could a pyrotechnician—who only works in
that capacity a few days a year and who holds
a full-time regular job—plausibly seek the
benefits of unemployment insurance after
working on a Fourth of July fireworks show?
Well, the New Jersey Department of Labor is
renown for its extreme positions, and that’s
exactly the position it took. After four years
of struggling through expensive hearings and
proceedings, the company finally appealed
that result to the Superior Court of New
Jersey, Appellate Division. In September 2017,
common sense prevailed, and the appellate
court determined that the state was wrong.
The appellate court reasoned: “It is difficult
Incentives for Treating Workers as
to conceive that an individual who does work
for a company one to three days a year, while
working full-time in another profession,
could be reasonably considered an employee
of that company.”
If a state labor department takes the
position that pyrotechnicians who work
a few days a year cannot be classified as
independent contractors, how do you think
such government agencies may view the
classification of professionals providing daily
right of way-related services within right of
way firms? When such firms are challenged
on the practice, they often do not fare as well
as the fireworks company—unless they are
well prepared to support their classification.
Most companies that treat any of their
workers as independent contractors
recognize the strong economic and
operational justifications for the decision.
Common reasons supporting the practice
• Independent contractors don’t have
to be paid overtime for working more
than eight hours in a day or 40 hours in
• Contractors can be hired and fired
• Bookkeeping is simpler with
contractors, as companies need only
report payments to them on an annual
1099 tax form and don’t withhold taxes
or make Social Security and Medicare
contributions for them.
• Firms do not typically offer contractors
regular employee benefits like 401k
contributions, paid sick or vacation
time, or maternity leave.
• Firms usually don’t pay unemployment
or disability premiums for contractors.
• Classifying a service provider as an
independent contractor may insulate
the firm from liability for the service
provider’s errors or omissions.