handled through some 65,000 independent dealers. Our orders amount to from 33 cents up, with the average amount for the past season from $40 to $45 at our regularly established wholesale prices on cash-with-order basis. We received approximately 180,000 individual orders this past season plus payment for 33,000 sample orders sent on approval. Paragraph 4, page 51, of the amendment is so broadly written that it could be subject to interpretations later which would be so detrimental to this business and all other business of similar nature, as to actually put us out of business and deprive thousands of persons of making a small Christmas earning. We are not protesting against the extension of social-security coverage but we do contend that our independent dealers are self-employed and that such independent dealers should be excluded from coverage and the proposed act should be so written as to explain this. Thus eliminating the hazard of having them ruled otherwise later. We state again that it would be impossible for us to continue in business if these independent agents were termed employees bcause: 1. We have no control over these people. We only know that on the average they buy from $40 to $45 worth of merchandise from us. We are not sure at what price they sell, so we cannot even estimate their profit. We cannot withhold tax as they collect their own money. 2. Many of these independent dealers sell other items of merchandise. 3. If these independent dealers were termed "employees," we would have the problem of withholding income tax which would, also, be impossible. 4. Since many of these independent dealers sell for more than one company, think of the complications which would be caused by duplication of unemployment claims, etc. In conclusion, we would like to state that these people are independent dealers; they work intermittently (90 percent of them sell Christmas cards during the month of September, October, and November) and they are trying to make a little extra money for the holidays. We exercise no control over them; we give them no territory; we ask no reports from them; they also sell any other merchandise they care to. From this you can see that any tax that might be forthcoming from this vast number of people doing, individually, such a small amount of business, would be insignificant compared to the cost of collecting the tax which cost could be excessive enough to cause many concerns to go out of business. The proposed amendment should, therefore, properly classify these people independent dealers, self-employed persons who would thus be covered under the self-employment provisions of the Social Security Act. We hope that you will be guided by the above facts in considering this very important legislation. Very truly yours, GENERAL CARD CO. L. A. SOLBERG, Secretary. NATIONAL RETAIL LUMBER DEALERS ASSOCIATION, Subject: Definition of employee, H. R. 6000. Hon. WALTER F. GEORGE, Chairman, Committee on Finance, Washington, D. C. DEAR MR. CHAIRMAN: The association which I represent is spokesman for the 25,000 retail lumber and building supply dealers in the United States. Over half of the 25,000 dealers are in communities having a population of less than 2,500 people and three-fourths of them are in communities having a population of 25,000 or less. In these small communities and in the rural areas the lumber dealer is more than a distributor of building materials. He must arrange for the financing of the homes, finance the carpenter-contractor, provide the plans and in a very general way supervise the construction. These are services rendered to the consumer in order to create a market for the dealer's products and for which the dealer receives no direct remuneration. The carpenter-contractors engaged in the actual construction are not employees of the dealer, are not on the dealer's pay roll and are neither hired nor discharged by the dealer. On the other hand, the dealer being interested in sound construction and the proper application of materials maintains a remote super vision to the same extent that an architect maintains supervision in order that his plans and specifications are carried out. The vague formula contained in section 210 (k) (4) of the bill (H. R. 6000) for determining who is an employee would result in uncertainty in our industry. That subsection provides that an individual who is not an employee under the common-law test or not specifically enumerated in subparagraphs 1 and 3 shall be deemed an employee by the combined effect of the following factors. (a) Control of the individual; (b) Permanency of relationship; (c) Regularities and frequency of the performance of the service; (d) Integration of the individual's work in the business of which he renders service; (e) Lack of skill required of the individual; (f) Lack of investment by the individual in facilities for work; and It is to be assumed that either the Administrator of the Social Security Act or the Secretary of the Treasury or both would have the function of determining when an individual, who is not in fact an employee, would become a "statutory employee" under this formula. The bill is silent as to how much weight should be given to any one of the determining factors. To cite a few examples of the thousands of questions that may arise under these tests, in our industry, I would like to propound some questions: 1. Must the "control over the individual" be direct and immediate or may it be indirect or remote? 2. Does the "control of the individual" relate to the employment, discharge, hours of work, or the application of his skill, time, and type of work? 3. If a carpenter-contractor happens to work on several projects to which the dealer supplies material is this to be considered "permanency of relationship"? 4. If a carpenter-contractor is employed on a series of projects to which the dealer supplies materials can it be said that "there is regularity and frequency of performance of the service"? 5. If a carpenter-contractor works on a series of projects to which the dealer supplies material can it be said that there is an "integration of the individual's work in the business to which he renders service"? 6. Could it be said that a carpenter-contractor, having no special skill in any particular trade would be classified as an employee when all other factors are equal? The obvious purpose of this section is to make certain businessmen the collector and payer of taxes in those situations where the Treasury Department feels it may be difficult to enforce the collection of this particular tax. The carpenter-contractor in the smaller communities is a self-employed person who receives financial assistance and technical aid from the building-supply dealer. It is distortion, however, to claim that there is an employer-employee relationship between the two or that there is any integration between their activities. The carpenter-contractor's chance of loss or profit is clearly independent of the building-supply dealer's chance of loss or profit. Working in close harmony with him, however, the building-supply dealer promotes a market for his product and the carpenter-contractor creates an opportunity for self-employment. It is no different than the cooperation that exists between financial institutions and the dealer or between the manufacturer of building products and the dealer. Congress in 1948 enacted the so-called Gearhart amendment clarifying the uncertainty created by previous Treasury rulings. We trust that Congress now will not reverse this situation. Since the bill (H. R. 6000) covers self-employed individuals there appears to be absolutely no justification for changing the present law governing the test of employer-employee relationship. For commerce and trade to thrive there must be a high degree of certainty in the law and this is especially true where the small-business man is involved. The small-business man does not have the financial resources to gamble on uncertainty or to be continually resorting to legal advice. It was the uncertainty in the wage-and-hour law that threatened thousands of small-business men with bankruptcy. The enactment of this proposal would not only create uncertainty but an almost impossible task from the standpoint of the lumber dealer in computing the amount of tax due, let alone collecting the "statutory employee's" contribution. We, therefore, recommend that subparagraph 210 (k) (4) be deleted from the bill. Respectfully, H. R. NORTHUP, Executive Vice President. Representative WALTER H. JUDD, Washington, D. C. THE W. T. RAWLEIGH Co., Minneapolis, Minn., March 1, 1950. DEAR SIR: I understand that the Federal social-security bill-H. R. 6000—will soon be up for consideration again. I especially wish to call your attention to subsection (4)—that part of the bill defining "employee." I am strongly opposed to this part of the bill, as it would change the usual common-law rule as the yardstick to determine whether or not a person was an independent operator or contractor, or an employee. As the bill is now written, it would include independent contractors-men who are in business for themselves-engaged in direct selling. Our company, as well as hundreds of others engaged in direct selling, has no control over the hours or production activities of our customers. They are independent operators in the full sense of the word-they can work 1 hour or 10 hours daily-2 days or 6 days a week-whatever hours they themselves want to devote to it, with no control on our part. They own and operate their own businesses. Their profits are determined solely by their own initiative, industry, and capacity. We have no objection to social security and the broadening of its scope soundly. And we believe the new bill contains provisions for self-employed persons. But they should be covered as such. Therefore, I respectfully request and urge you to use your influence to have subsection (4) changed so there will be no confusion in business relationships, so that it will be determined by the common-law rule, and thus no employer will be liable for social-security taxes on a person who is not in truth and fact his employee. Respectfully yours, THE W. T. RAWLEIGH Co., (Whereupon, at 11:40 a. m., the committee recessed to reconvene Monday, March 13, 1950, at 10 a. m.) SOCIAL SECURITY REVISION MONDAY, MARCH 13, 1950 UNITED STATES SENATE, The committee met at 10 a. m., pursuant to recess, in room 312, Senate Office Building, Hon. Walter F. George, chairman, presiding. Present: Senators George, Byrd, Hoey, Kerr, Millikin, Brewster, and Martin. Also present: Senator Thye, Representative Frank W. Boykin, First District, Alabama; Mrs. Elizabeth B. Springer, Chief Clerk; and F. F. Fauri, Legislative Reference Service, Library of Congress. The CHAIRMAN. The committee will come to order. Mr. Canfield is the first witness. You may come around and have a seat. STATEMENT OF ROBERT E. CANFIELD, NEW YORK, N. Y., REPRESENTING AMERICAN PULPWOOD ASSOCIATION Mr. CANFIELD. My name is Robert E. Canfield. The address is 122 East Forty-second Street, New York City. I am appearing for American Pulpwood Association in opposition to the proposed amendment of the definition of "employee" in the Social Security Act and the Internal Revenue Code, which proposal is set forth in sections 206 (a) and 104 (a) of H. R. 6000. The American Pulpwood Association represents the pulpwood industry; that is, dealers in and producers and consumers of pulpwood throughout the United States. Pulpwood is the basic raw material from which nearly all paper and paperboard is made, and paper and paperboard, of course, are the basic commodities without which no other industry, no government, no school, no form of written communication can exist, without which freedom of the press is a meaningless phrase, without which, in fact, civilization as we know it would be impossible. There is, therefore, public interest and concern aplenty in what concerns the paper and paperboard industry, and the industry which supplies its basic raw material. The pulpwood industry is opposed to the inclusion of the definition of "employee" in H. R. 6000 as proposed in the sections 104 (a) and 206 (a) because it knows that that definition, if made law, would not accomplish what some think it is intended to do, and indeed would accomplish little if anything desirable. On the contrary, it would cause a major upheaval of the industry and a complete change in the methods of wood procurement in common use for many years by most consumers of pulpwood, necessarily involving the destruction |