L.A. Area Leads in Employers That Aren’t

One hundred workers count on Betsy Briones for their paychecks. But not one of them works for her.

Briones is a so-called nonemployer, relying exclusively on contract or temporary workers. This arrangement, which allows employers to avoid the soaring costs of health insurance and other benefits, is booming in California, according to a Census Bureau report to be released today.

The 63-year-old Briones runs a busy referral agency for in-home care workers out of her Los Angeles residence, placing caregivers with elderly or disabled clients. All of her caregivers are independent contractors and are responsible for obtaining their own benefits, she said.

Los Angeles County -- a hotbed for small business -- seems to be the capital of this “free agent nation.” It has more nonemployers than any other U.S. county, although their ranks are now growing even faster in the Inland Empire, according to the census report.

California businesses have been hiring contract and temporary workers in construction, administrative and high-tech jobs for years, and the practice appears to be spreading to industries such as real estate brokerages, beauty salons and insurance agencies, the report said.

The number of nonemployers grew 19% statewide from 2000 to 2004, reaping 27% more in revenue, according to the Census Bureau. During that time, the number of nonemployer real estate offices grew 46%, while healthcare and social assistance businesses increased 27% and architectural and engineering services jumped 12%, the report said.

Los Angeles County added 4.6% more nonemployers in 2004, while Riverside and San Bernardino counties added 7% and 7.1%, respectively, according to the report.

As the economy slows, analysts expect the tight labor market and increased business investment to boost demand for temporary workers, already up 2.7% in June compared with last year, according to the Labor Department.

“A lot of people want to have a business but don’t want the headaches of actually having to employ people,” said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp. The recent growth of nonemployers -- particularly in the entertainment, transportation and warehouse industries -- is dramatic, Kyser said.

Los Angeles-area businesses become nonemployers to avoid the costs of workers’ compensation, paid leave, health insurance and state taxes, he said. Contractors end up paying more for their own healthcare or go without it.

Gary Pavlica used to employ 12 men in his West Los Angeles construction company. He had been paying for their health, workers’ compensation and liability insurance.

“But it got to be too expensive,” he said. “I couldn’t make a decent profit.”

A few years ago, Pavlica encouraged each of them to get a contractor’s license for their particular trade. Now, he hires the same men as independent subcontractors to do the framing, electrical work, painting and other work on his jobs.

“It’s up to them now to get their own insurance,” he said.

Pavlica characterized the new arrangement as a win-win situation. “Basically I’m exempt from the insurance responsibilities,” he said. And his subs “work for other contractors instead of just waiting for me to get the work for them. They’re licensed and insured and bonded.”

Briones felt the same, noting that as independent contractors, many of the caregivers she places also list themselves with other agencies, giving them more opportunities for employment. The same flexibility applies to nonemployers. If business slows, they don’t need to lay off anyone; they just use fewer contractors.

“You talk to these people and they say the same thing: ‘I’m not hiring anyone ever,’ ” said William Dennis, a senior research fellow at the Washington-based National Federation of Independent Business Research Foundation.

Some workers prefer these conditions because it gives them the flexibility to make their own schedules, take time to care for young children or ailing parents and live where they want. Computer technology enables independent contractors or “permatemps” -- permanent temporary employees -- to work from home. Some are part of the “EBay economy,” buying and selling on the Internet for themselves.

“I just don’t think I could ever work for anyone; I’m too independent,” said Sarah Shaw, 41, who runs her women’s accessories business out of her Hollywood garage. She said she preferred paying for her own benefits over working for someone else.

Many successful free agents can do better as independent contractors than as employees.

“Salespeople survive and prosper by their own efforts,” said a principal with a Los Angeles real estate firm who didn’t want his name used. “In many brokerage and sales organizations, if you’ll take the risk of producing out in the world, then companies will reward you with more money.”

Some of these self-employed have a working spouse with health insurance and a fat retirement account, said David West, who heads the Center for a Changing Workforce, a Seattle-based group that advocates for benefits for temporary workers.

But more often than not, people aren’t given a choice about these arrangements. Some simply can’t find acceptable permanent employment in their chosen fields.

“If they want the work, those are the conditions under which they take it,” West said.

That’s particularly true for younger workers and recent immigrants.

“As a result, you see patterns, such as Korean immigrants who clean office buildings,” West said. “They call the person an independent contractor even though they’re only cleaning one floor of a building.”

As of last year, there were 5.7 million contingent workers -- contract, temporary and self-employed workers -- about 4% of the workforce, according to the Labor Department. Of those, 55% said they would prefer a permanent job.

The census report -- which includes sole proprietors, partnerships and corporations, usually with less than $2 million in annual receipts -- is based on tax records, which do not address the underground economy of illegal and off-the-books workers. But experts agree that undocumented workers are a significant part of the nonemployment scene in California.

Litigation and pressure from the Internal Revenue Service have changed the landscape of nonemployment in recent years. In one of the most high-profile cases, Microsoft Corp. agreed in 2000 to pay $97 million to settle a long-standing lawsuit by thousands of temporary workers who claimed they were denied benefits at the software giant.

This permatemp case, filed in 1992 and triggered by an IRS audit of the firm, involved Microsoft’s practice of hiring long-term workers through temp agencies so that it could allegedly avoid paying pensions, healthcare and stock options.

As a result of this case and others, West said, large corporations shifted to hiring permatemps through staffing firms rather than contracting with them directly.

Many smaller real estate companies, nail salons and landscaping companies are directly hiring independent contractors, West said, but those that are doing it wrongfully “are below the radar of the IRS’ capacity to do enforcement.”