EMPLOYEE SERVICE DETERMINATION

Southern Pacific Transportation Company

Data Processing Consultants

This is the determination of the Railroad Retirement Board

concerning the status of data processing consultants who performed

services for Southern Pacific Transportation Company (BA No.1713)

(SPTC) under the Railroad Retirement Act (45 U.S.C. §231 et sea.)

(RRA) and the Railroad Unemployment Insurance Act (45 U.S.C. §351

et sea.) (RUIA).

Background

The Board's Division of Audit and Compliance conducted an audit of

SPTC to determine the accuracy of creditable compensation and 

service reporting under the RRA and the RUIA. The data processing

consultants were identified through a review of IRS Forms 1099

"Miscellaneous Income" and accounts payable invoices issued by SPTC 

to individuals treated as independent contractors. Because the

audit found that those individuals worked for SPTC for extended

periods of time on SPTC property, the question was raised as to

whether they were properly classified as independent contractors.

SPTC's comments on the coverage report relating to the data 

processing consultants are noted in the discussion below.

The scope of the investigation was limited to obtaining an

understanding of the services performed by the consultants and 

determining the number of individuals involved, the amount of

compensation paid during calendar years 1991 and 1992, the

period(s) of time services were provided, and whether the

consultants performed service for other clients, as well as to

obtain any other information necessary for the Board to make a

coverage determination.

Information Gathered About Data Processing Consultants

Data processing consultants were employed by SPTC to provide

programming and other data processing services. Systems and 

projects worked on included the following: (1) car collateral

substitution programs, (2) interline settlement statistical

studies, (3) empty car management systems, (4) rejected car loading

systems, (5) waybill- freight bill projects, (6) clean up projects, 

and (7) data table up-date servicing.

SPTC was not able to provide written agreements which describe the

services performed and conditions of employment, with the exception

of one individual. Data processing consultants are paid on a per 

hour basis with hourly rates ranging from $15 to $60 per hour.

SPTC pays pre-authorized travel expenses and special travel to

other locations at 30 cents per mile. Reimbursement for services

rendered is paid within 10 working days of the date of invoice.

BCD 1996-14 BA # 1713
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Southern Pacific Transportation Company

Data Processing Consultants

SPTC employed the services of five data processing consultants

during calendar years 1991 and 1992. These individuals worked in

the Management Services, Treasury, and Logistic Departments of

SPTC. The five consultants surveyed performed work as independent

contractors for periods ranging from five months to approximately

five years. Only one individual currently provides services to

SPTC.

Review of Forms 1099 "Miscellaneous Income" issued by SPTC for

calendar years 1991 and 1992 show that data processing consultants

were paid compensation exceeding $176,000 in 1991 and $215,000 in

1992. The Division of Audit and Compliance estimated that three of

the consultants worked over 1000 hours for SPTC in calendar year

1992. That estimate is based on dividing the compensation amount

paid by the hourly rate. SPTC pointed out in its comments that the

amounts reported on Form 1099 include all amounts paid to an

independent contractor during a calendar year, including any 

amounts paid as reimbursement of expenses. As a result, SPTC

stated that the estimated hours worked are substantially

overstated.

All five data processing consultants stated that they worked on

SPTC property located at One Market Plaza, San Francisco,

California or at home, depending on the requirements of a

particular project. The consultants indicated that they set their

own work hours, which generally coincide with those of SPTC. The

majority of individuals work Monday through Friday from 8 A.M. to

5 P.M., although some weekend work is required.

All consultants stated that the only reports submitted to SPTC are

monthly invoices showing the hourly rate and the number of hours

worked during the period. Data processing consultants stated that 

they do not follow SPTC operating instructions or procedures. Data

processing consultants indicated that they are not supervised or

controlled by SPTC in the performance of their work.

One individual indicated that she "followed the same procedures and 

worked in the same department as she had done since 1969." SPTC

commented that this individual terminated her employment with SPTC

in August 1988 to attend the University of California, Los Angeles.

SPTC stated that after that time, she provided service, first as an

independent contractor during school breaks and later on a more

regular basis.

Another individual stated that she "followed simple verbal

instructions." One of the other consultants stated that he was

hired on a part-time basis to train a new employee to perform his
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Southern Pacific Transportation CompanyData Processing Consultants

prior job functions. That individual previously worked for SPTC

from 1950 to 1991, when he retired.

Three consultants stated that they do not perform work for clients

other than SPTC. One individual estimated that approximately 67

percent of his income for 1991 was derived from SPTC. Another

stated that she performed work for other clients, but provided no

estimate of time worked or income derived from other clients.

SPTC commented that one individual was engaged for a specific

project and that when the project was completed, she no longer

performed services for SPTC. SPTC stated further that that 

individual performed all services at her own facility and provided

all equipment necessary, including her own computer. Her only

activity on SPTC property was to review with the responsible

official the progress of the contract. SPTC stated that that 

individual has other clients for whom she provides similar

services. She had no office space, office furniture, telephone,

computer time, computer terminal or office supplies provided by 

SPTC. In addition, she did not work full time, and she set her own

hours.

In some cases, SPTC provides data processing consultants with the

use of office space, office furniture, telephones, computer time,

computer terminals and office supplies. One individual indicated

that SPTC provided a computer for home use.

Data processing consultants became aware of their jobs through

friends or prior SPTC work associates. All five data processing

consultants indicated that their businesses were not incorporated.

Only one individual's business was registered in his state of

residence. None of the individuals advertised their services in

trade or business publications.

Four of the five data processing consultants were found to have 

been employees of SPTC prior to their performing services as

independent contractors. The individuals have in excess of the 120

service months necessary to receive retirement benefits under the

RRA.

Discussion and Conclusions

Section 1(b) of the RRA defines the term "employee" to mean "any

individual in the service of one or more employers for

compensation." Section 1(d)(1) of the RRA provides in pertinent

part that an individual is in the service of an employer if:
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Southern Pacific Transportation CompanyData Processing Consultants

(i)(A) he is subject to the continuing authority

of the employer to supervise and direct the manner of

rendition of his service, or (B) he is rendering

professional or technical services and is integrated into

the staff of the employer, or (C) he is rendering, on the 

property used in the employer's operations, personal

services the rendition of which is integrated into the 

employer's operations. [45 U.S.C. §231(d)(1)(i)].

Section 1 of the RUIA contains essentially the same definition.

The information summarized above indie;ies that two of the

definitions of employee [those in sections 1(d)(1)(i)(B) and (C)]

might apply to the data processing consultants. First, the

definition in section 1(d) (1) (i) (A) does not apply because the

evidence indicates that the consultants are not subject to the

continuing authority of SPTC to supervise and direct the manner in

which they render their services. Specifically, the consultants do

not follow SPTC's operating instructions or procedures when they

perform their work. In addition, they set their own work hours. 

Further, the only reports that the consultants submitted to SPTC

were monthly invoices showing the hourly rate and the number of

hours worked during the period.

Looking next at the definition in section 1(d) (1) (i) (B), the Board

finds that the service performed by the data processing consultants

are technical in nature because of the specialized knowledge and 

expertise which the consultants must possess in order to carry out

their services. However, the Board finds further that the

consultants are not integrated into the staff of SPTC for a number

of reasons. The Board notes the time periods for which each of the

five consultants performed services for SPTC as detailed on Exhibit

2 prepared by the Division of Audit and Compliance. That Exhibit

shows that on the whole, the consultants performed data processing

services for confined periods of time, indicating that they worked

on a project by project basis. Of the four consultants who had

previously worked as employees of SPTC, the employment relationship

had ended from as short a time as 3 months to as long as 6 years

prior to the time that the individual began providing services as

a data processing consultant. The consultants provided their

services to the Programming Services office of three different

departments. They set their own work hours and worked either on

SPTC property or at their homes, depending on the requirements of

the project being worked on. SPTC provided data processing

consultants with the use of office space, office furniture,

telephones, computer time, computer terminals and office supplies

in only some cases. Moreover, the consultants did not submit
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Southern Pacific Transportation Company

Data Processing Consultants

reports to SPTC other than the monthly invoices which set out their

hours worked and hourly rate so that they could be paid. The Board

finds that the totality of the evidence indicates that the data 

processing consultants were not integrated into the staff of SPTC 

and therefore finds that they were not employees within the

definition in section 1(d)(1)(i)(B).

Similarly, the Board finds that the data processing consultants

were not employees within the definition in section 1(d) (1) (i) (C) .

The Board finds that the services which they provided may be

considered to be professional services in that those services

consist of specialized work which can be performed only by

individuals who have had particularized training and education.

However, the second part of the definition in section 1(d) (1) (i) (C)

requires that the individual be integrated into the staff of the

employer. The Board has already found that the data processing

consultants are not integrated into SPTC's staff.

For the reasons set forth above, the Board finds that the data

processing consultants are not employees of SPTC for the calendar

years 1991 and 1992, the years which were the subject of the audit

by the Board's Division of Audit and Compliance.

Glen L. Bower

V. MXSpeakman,.^Tru [Dissenting

opinion attached)

^Jerome F. Kever
DISSENT OF

V. M. SPEARMAN, JR.

ON THE COVERAGE DETERMINATION

SOUTHERN PACIFIC TRANSPORTATION COMPANY

DATA PROCESSING CONSULTANTS

I disagree with the majority ofthe Board’s determination in this case. By the very nature

ofthe data processing consultant’s relationship to Southern Pacific Transportation

Company (SPTC) and the servicesperformedfor the various departments ofthe

company, I would consider them to be employees ofthe railroad and not independent

contractors. Ifind it significant that these individuals do not hold their services out to

the public, are paid an hourly “salary ” with expenses, run no risk ofa loss in their

business relationship with the company, andgenerally set their work hours to those of

SPTC.

It should be noted that 4 ofthe 5 consultants in question were previously employees of

SPTC raising the possibility that these individuals were merely brought back to perform

theirformerjobs. Infact, one consultant indicated that shefollowed the same

procedures andworked in the same department as she had done when she was aformer

employee.

I consider the data processing consultants to be employees ofSPTC. There may be a

possible exception, that being one individual who apparently worked at her ownfacility,

provided all her own equipment including her own computer, had other clients, and

worked less thanfull-time.

V. M. Speakman, Jr.

i( 7 I / 6

Date