You take on trainees. You may be a trainee. Or your office includes a number of appraisers working from different locations — their homes, maybe — with whom you split fees because you farm them your more remote work and they deliver you their reports. Maybe you're thinking of taking on extra appraisers, or summer help. Or you're thinking of joining a larger office after working for yourself.

These and many more situations require you to figure out who's an employee and who's an independent contractor. It's an issue appraisers are given surprisingly little guidance on, considering how often the situation calls for such a determination. Over the next several weeks, we'll talk about employee vs. independent contractor issues in the context of your business. In this edition, we'll start with some of the basics, applicable across the board.

It's important to note that none of this is legal or tax advice. The businessperson who writes the checks, whether that's you or the person you work for, is responsible for correctly classifying his or her employees and independent contractors. If they guess wrong, the IRS isn't the forgiving and forgetting type. And neither are employees erroneously classified as independent contractors, or vice-versa.

Take the situation recently of FedEx in California. In 1998, FedEx bought ground delivery operation RPS Inc. Since then, it's classified most of the drivers for the resulting division as independent contractors. They buy their own vehicles and pay FedEx for routes. It a great arrangement for the right entrepreneurial type. The problem is that some drivers felt they were employees in everything but name. So they initiated a class action lawsuit in Los Angeles Superior Court, and the judge handed them a victory: It said FedEx should have been buying the drivers' gas and paying for truck maintenance and should have been paying into Social Security.

The stakes, of course, are higher than even that. Employees' income taxes are withheld by their employers, and they may be entitled to benefits and health insurance, according to each state's law that determines how many full timers you need in order to offer the legal minimum. Either trying to avoid that or through honest ignorance — or something in-between — 29 percent of randomly audited companies in California had some independent contractors they'd classified wrong, according to a recent article by the Sacramento Bee. The paper further reported that "of the 418,400 new jobs created in California in 1998, the last year that numbers were available, 9,478 of them were misclassified as independent contractors."

The IRS offers guidance at its website. When you boil it down, whether someone is an employee or an independent contractor has to do with how much control the employer (and note: we're saying "employer" here whether or not we're talking about employees or independent contractors — a little confusing, but the best shorthand there is) has over their work. It generally does not matter whether they're called an employee or independent contractor — witness the 29 percent of California companies that were getting it wrong.

For both independent contractors and employees, the employer has control over the result of their work. In our context, that means whether an appraiser is an employee or independent contractor, the employer asks for and gets a report within a certain timeframe in a certain format on a certain property as the employer may direct. It's in the method of completing that work that the difference lies.

If the employer, for example, requires the appraiser to report to the office by a certain time, clock in, leave a schedule where they'll be while on inspections, attend company meetings, use a certain software, use company provided equipment, and so on, you're probably talking about an employee. If the employer basically faxes an assignment (or uses the appraiser's XSite!) along with a request that a 1004 be completed and to him or her by a certain date and leaves it up to the appraiser how, when and where to accomplish that, you're probably talking about an independent contractor.

Those are pretty clear cases. As you would imagine with three out of 10 employers supposedly getting it wrong, there are a lot of cases that mix and match all these things so that the outcome isn't as clear. There's generally no reason, for example, you couldn't give an independent contractor a laptop to use for his work for you and even give them company e-mail so it's easier to get hold of him. A tax adviser or attorney is the best source for a definitive answer in your specific situation. This is especially true since employment laws can vary from state to state.

In future editions we'll talk about what circumstances would make it best for you to classify an appraiser as an employee or independent contractor — or, on the other hand, whether you should try to catch on with a company as an employee or an independent contractor.

Fannie, Freddie stifling technology innovation, potentially dangerous to appraisal industry: White paper

Mortgage technology pioneer Scott Cooley has produced a white paper contending Fannie Mae and Freddic Mac have stifled technological innovation by inserting their automatic underwriting systems (AUSs) into the marketplace and insisting upon their use by lenders. Further, he warns that the Government Sponsored Enterprises (GSEs) have the power to force all appraisal orders to be routed through their AUSs and charge appraisal transaction fees.

The paper, GSEs and Their Technological Impacts, has been circulated to the Mortgage Bankers Association (MBA) leadership and will eventually find its way to Capitol Hill, Cooley told National Mortgage News.

Cooley says AUSs have not fulfilled their promise of increasing mortgage transaction efficiencies, owing to training expenses borne by the lender, increased costs to third party vendors to deliver their products through the AUSs, expenditures incurred by mortgage software companies to interface with the AUSs, and other reasons.

Fannie Mae and Freddie Mac have the potential to profoundly impact appraisers even more than they do now, Cooley told us. "They have the ability with DU/LP to force mortgage companies to put all appraisal orders through their systems and to enforce new rules and regulations on the appraisers (as well as when they won’t be used)," he said. "They could also earn significant appraisal transaction fees on every loan that goes through DU/LP."

Left unchecked, Cooley warns, the GSEs could market and profit from the sale of consumer information — and Fannie Mae and Freddie Mac are exempt from privacy laws, he adds. "Every piece of information needed for consumer identity theft is in these databases and little is known about any safeguards," the paper contends.

The most significant real cost, the paper argues, is to private innovation. The effective requirement that lenders use Fannie's Desktop Underwriter (DU) or Freddie's Loan Prospector (LP) prevents the most efficient systems from prevailing in the market. "When the GSEs introduced automated underwriting systems, we saw many companies stop their own such initiatives. Millions in funding and development were wasted as projects were halted. Had these products been allowed to come to market, the industry would be more productive today."

Among other things, the paper recommends GSEs be limited to developing technology specific to streamlining the delivery of loans to them, that "open source" underwriting rules be developed, and that the GSEs be barred from handling and selling third party services, including appraisals.

"I think it’s in the best interest of the appraisal industry that this duopoly is prevented from having any control on the appraisal industry beyond openly publishing lender guidelines," Cooley said.

Download or view a copy of the five-page white paper here (Microsoft Word format).

New virus slowing down Internet

A new e-mail virus is clogging up the Internet. (You may have noticed!) Dubbed the Sober.p virus, it recently accounted for 5.4 percent of all e-mail activity on the Internet, and 84 percent of virus activity, according to CNET News.

The virus arrives in an e-mail message that appears to be from an actual person/e-mail address, which was mined from the computer of the last unfortunate victim of the virus. The text of the message varies, and may be in English or German. It includes a .zip attachment. Once opened, the attachment creates files, replicates itself and infects the registry of the host computer. It then churns out new virus- and attachment-infected e-mails and sends them to addresses found in the host computer's e-mail address book.

The best way to avoid this virus is not to open any unsolicited e-mail attachments. Some people with @alamode.com e-mail addresses in their address book have fallen victim to this virus and so occasionally virus-infected e-mails will appear to be from someone at a la mode. Be assured they're not. We never send unsolicited e-mail attachments.

This page from CNET includes the latest information on the virus, including advice on how to rid your computer of it.