Op-ed views and opinions expressed are solely those of the author.
Earlier this month I stumbled into a disparity that seems to be on the rise in the banking world.
A direct lender was attempting to recruit a licensed loan originator from another direct lender. His argument for the originator making the change was simple: “You are currently issued W-2s. I can pay you as an independent contractor, issuing a 1099 at the end of the year.”
To some in the industry, this would not matter. In fact, many would prefer to be paid as w-2’d. It lessens the responsibility of properly allocating withholdings. However, some direct lenders have made it a practice to allow the originator to pay both ends of the social security payroll tax. It results in a smaller net paycheck. This was the case in the originator’s instance.
Conflicting Explanations
This originator liked his lender and did not want to move his license. However, the lure of independent contractor status suggested seeking an outside opinion. The logical part was the Florida Department of Financial Regulation. Their answer was, “the only requirement that Florida has is that an originator work for only one bank/lender/broker.” A subsequent call to his U.S. congressional office yielded, “that it was state specific and had been since 2017.”
Debra Killian, a longtime industry professional and current, course developer and instructor for Charter Oaks, LLC explained.
“The IRS ruling from years ago was that mortgage loan originators are W-2 employees. There are many companies violating federal tax laws, state tax laws, labor laws, and unemployment insurance.
“The U.S. Department of Labor is modifying Wage and Hour Division regulations to replace its analysis for determining employee or independent contractor classification under the Fair Labor Standards Act (FLSA or Act) with an analysis that is more consistent with judicial precedent and the Act’s text and purpose.” Killian continued.
When questioned, “why” there seemed to be such conflicting directives, Killian admitted. “I wish these states would curtail their misinformation. The Labor Department is only following an I.R.S. directive.”
In this case, it coincides with a March 10th D. of L. directive that is part of a Biden initiative to kill independent contractors in all fields.
Outside of their Lane?
When asked if perhaps both the I.R.S. and the D. of L. were outside of their purview, Killian couldn’t answer. In fact, the mere thought of anyone taking exception to what was considered a settled matter brought temporary discomfiture.
‘Let’s face it, Debbie,” I retorted. “If the I.R.S. had its way, EVERYONE would receive a w-2.”
She agreed but concluded that the issue, nevertheless, had already been determined.
My question is simple: “Does the 10th amendment make any reference to whether the state or the federal government holds rank on who determines whether the employee is paid w-2 or 1099?”
Of course it doesn’t! In fact, a strong case can be made that this type of directive issued by the Department of Labor amounts to federal overreach.
My lender contended that they could be shut down by D. of L. for failure to comply. The recruiting lender said, “it would be a tough case to make! Unelected bureaucrats can ignore state law and shut down an otherwise law-abiding business over such a distinction? I would love to hear Governor DeSantis’ thoughts on it.”
The Nullification Crisis Rekindled?
99% of Bankers, not to mention 99% of Americans could tell you little of the 1832 Nullification Crisis, engineered by South Carolina’s John C. Calhoun. South Carolina was ready to secede from the Union if they were not able to nullify protective federal tariffs. In the end, they compromised. However, the question remained partially unanswered in 1861. Its impact remains cloudy today.
Perhaps the most flagrant example of nullification is taking place in sanctuary cities throughout America. The difference is that the Constitution makes clear that border protection IS within the federal purview. Therefore, if there were serious intent on following the law, each city could be, and should be, publicly reprimanded. Their leadership is openly practicing nullification. Punishment might include but would not be limited to, permanent disenfranchisement and future preclusion from holding public office.
This obviously isn’t happening! In fact, the corporate media’s consensus is that “sanctuary cities are actually a benevolent overture.” Never mind that those seeking haven were and have been systematically breaking the law. Yet the federal bureaucracy can shut down a small lender for defying a rather ambiguous directive because he concluded that his state’s word was the last word?
The “two-tiered system of justice” rears its head again!
In essence, it’s okay to harbor individuals who broke the law, essentially “aiding and abetting criminals.” Yet a small direct lender could theoretically be put out of business for issuing an originator 1099 at his request.
This obscure sequence exemplifies the intense divide facing the nation. On every corner, we appear to be at an impasse. Democrats relish a country that is run by an all powerful, Washington, D.C. based, administrative state, alarmingly reminiscent of the Soviet Union.
Constitutional Republicans want smaller government, with the states retaining greater latitude. The academic term for them is “strict constructionist.”
The only remaining questions are, “will there be a breaking point? And if so, can it be done peacefully, or will it be violent?”
We may know after November 5th.
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Author: Jeff Willis
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