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Revenue Ruling 71-273 1, 1971-1 CB 286

REV-RUL, Who are employees., Revenue Ruling 71-273 ¹, 1971-1 CB 286, (Jan. 01, 1971)

Section 3121.--Definitions

26 CFR 31.3121(d)-1: Who are employees.
(Also Section 3306, 3401; 31.3306(i)-1, 31.3401(c)-1.)
Piecemakers, skidders, and hired assistants engaged under an oral contract by a logging company that retains the right to control and direct their services are employees of the company; S.S.T. 396 superseded.

The purpose of this ruling is to update and restate, under the current statute and regulations, the position set forth in S.S.T. 396, C.B. 1940-2, 246.

The question presented is whether, under the circumstances described below, individuals known as piecemakers and skidders performing services for the M company are employees of that company for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages (chapters 21, 23, and 24, respectively, subtitle C, Internal Revenue Code of 1954).

The M company is in the general logging business and produces and sells logs, ties, pulpwood, posts, and poles. The company engages the services of individuals known as piecemakers under oral contracts to cut timber standing on strips of land assigned to them. The strips, which vary from three to ten acres in area, are designated by natural boundaries such as creeks, by roads, and by blazing or marking of trees. Except in certain situations, no other piecemakers are permitted to cut timber on a strip which has already been assigned to another. The piecemaker is paid a specified price for all timber he cuts that is suitable for the company's products.

The piecemaker furnishes his own tools and, if he desires, may employ his own assistants although the limited area of the strip seldom justifies such action. He may choose his own hours of work but it is understood that the strip must be completed within the particular cutting season.

The company also engages, under oral contracts, individuals known as skidders who skid logs cut from a particular strip to a designated location.

The same general working arrangements exist with respect to the skidders as in the case of the piecemakers.

In the event that a piecemaker or skidder, due to illness or other reasons, is unable to complete his contract within the cutting season, the company may engage others to complete the work. Also if the company finds it necessary to expedite operations in a particular area, piecemakers and skidders assigned to other strips may be moved into that tract even though they have not completed their own assigned area.

The company employs a foreman who inspects the various strips to determine whether the operations are being performed in accordance with the terms of the oral contracts. If the foreman finds that a piecemaker or skidder is not properly carrying out the terms of his contract, the foreman may replace him and enter into a new contract with another for the cutting of the timber or removal of the logs. At certain intervals the logs are scaled and the workers paid. However, the piecemaker or skidder receives no remuneration for logs with are not suitable for a company product or which are skidded or piled improperly.

An individual is an employee for Federal employment tax purposes if he has the status of employee under the usual common law rules applicable in determining the employer-employee relationship. Guides for determining that status are found in three substantially similar sections of the Employment Tax Regulations: namely, sections 31.3121(d)-1, 31.3306(i)-1, and 31.3401(c)-1. As stated in the regulations, generally the relationship of employer and employee exists when the person for whom the services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer.

In the instant case, the company has the right to reassign individuals from their designated work areas, and they must meet specified standards set by the company. The company supervises the means by which the results of the work is accomplished through its foreman and it also has the right to discharge any worker.

Accordingly, it is held that the piecemakers and skidders, together with any assistants engaged with the express or implied consent of the company are employees of the company for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages.

S.S.T. 396 is superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

1 Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.