After further investigation, the sub shop has filed a report with local police. Arrests are expected in the case.

Although this mystery shop was done because the business was aware of a potential problem, sometimes the first indication of trouble comes when an integrity mystery shop identifies possible employee theft.

Integrity mystery shops are different from typical mystery shops in that instead of checking things such as cleanliness, courtesy and sales skills, they are done to verify that employees are behaving honestly.

Situations that may be tested by integrity mystery shops include:

• Are bartenders overpouring (to increase tips) or serving free drinks?
• Are salespeople negotiating inappropriate discounts?
• Are waitstaff serving items that are not included on the guest checks?
• Are cashiers failing to ring up cash sales and pocketing the cash?
• Are employees charging for less-expensive items than customers are receiving?

Employee theft is a big problem. The U.S. Chamber of Commerce estimates that employee theft costs businesses as much as $50 billion a year, and that up to 75% of employees will steal from an employer at least once. Wow. That is a lot of dishonesty.

Integrity shops can not only catch dishonest employees, they can deter theft. If employees know that customers (i.e., mystery shoppers) may be watching them, they are perhaps less likely to do things they might do if they were certain no one was looking.

Some mystery shoppers are uncomfortable doing integrity shops. They may feel responsible for getting someone in trouble if they discover questionable activities. Remember, though, that you are not creating the behavior, only reporting on it. Often, too, if you are not a trained security professional your report may be just the first step in taking action against an employee, not the last word. If your report identifies a problem, a private investigator may be sent in to gather evidence needed for any disciplinary or legal action.

One thing you should be aware of is that some states only want integrity secret shops done by private investigators or employees working for a licensed private investigator. Before accepting an integrity mystery shop you may want to verify the laws in your state and/or the licensing status of the mystery shopping company. Some secret shopping providers are run by private investigators.

Congress proposed legislation last year on worker classification – whether individual workers are treated as independent contractors or as employees by the IRS and the U.S. Department of Labor.

The goal of the legislation is to address the “tax gap” caused by the improper classification of workers for tax reporting purposes. The Independent Contractor Proper Classification Act stalled in 2008 due to presidential opposition but is expected to be re-introduced in 2009.

MSPA is closely monitoring this proposal and cites multiple concerns:

• It hinders a person’s ability to earn extra money at a time when so many people need it
• It will impose new compliance costs on small businesses and others who rely upon independent contractors
• It will increase the cost for companies to utilize mystery shopping providers to objectively evaluate a customer’s experience and train/reward their employees

“The service our member companies provide, via independent contractors, has become a critical part of how companies train and reward their employees,” said John Swinburn, executive director of the MSPA.

The MSPA is among many industry groups currently lobbying to fight this bill.

“This is about the front-line people, the working moms, dads and grandparents who will have their ability to supplement their income severely impacted,” said Ron Welty, owner of IntelliShop, a mystery shopping company in Perrysburg, Ohio. “What we’re fighting literally amounts to millions of job opportunities for real people.”

Cathy Stucker, author of “The Mystery Shopper’s Manual,” makes her living as an independent contractor and has long advocated the benefits of mystery shopping for businesses of all sizes. She says the passage of this bill will have multiple negative consequences.

“If this becomes law, it’s a losing situation for everyone, the contractor, the business and ultimately companies who benefit from mystery shopping,” Stucker said. “It’s going to increase the cost of doing business for everyone, limit our ability to be our own boss, and negatively impact those who evaluate and enhance a customer’s experience.”

As secret shoppers, we typically work as Independent Contractors (ICs), not employees.

There is not a single factor or test that determines whether a worker is an employee or an IC. Saying that someone is an Independent Contractor does not necessarily make it so. There are several things that regulatory agencies, such as the Internal Revenue Service and state tax departments, consider when determining is someone is an employee or an IC. The rules are often vague, and interpretation is up to the agency making the determination.

The IC relationship is spelled out in the Independent Contractor Agreements (ICA) between mystery shoppers and mystery shopping companies. These agreements define the rights and responsibilities of both parties. ICAs often include language relating to the factors regulatory agencies consider when determining if someone is an employee or an IC.

So what does it mean to be an Independent Contractor?

Some of the characteristics of Independent Contractor relationships are that ICs typically:

• Market their services to the public, or to a number of clients
• Are free to take on the clients and projects they choose
• Get paid by the project, not by the hour
• Provide their own tools and materials
• Are responsible for their own expenses

Additionally, ICs retain control of their work. They choose the clients and assignments they will accept. Although the client can require specific results and impose deadlines on the IC, the IC decides when and how to complete the work.

Companies do not provide Workers Compensation or Unemployment Insurance for ICs. Nor do they withhold income taxes or pay the employer portion of Social Security and Medicare taxes for ICs.

Because they are not considered employees, ICs have all the tax advantages of any other small business. That means that they can deduct reasonable and necessary costs of doing business, such as car expenses, equipment and supply purchases, Internet access, and other expenses, including a home office. This can be a tremendous advantage to Independent Contractors, often outweighing the loss of benefits such as Unemployment Insurance.

Being an Independent Contractor–with the flexibility to work when and where you wish, and with whomever you wish–has many advantages over traditional employment relationships for those people who like having complete control over their work.

Although you do not have to be a licensed private investigator yourself, you are required to (1) be an employee of a licensed private investigator and (2) obtain a work permit from the sheriff of the county in which you work.

The work permit costs $90 and is good for five years. To get the permit, mystery shoppers must complete a detailed application and be fingerprinted. The $90 fee is the responsibility of the mystery shopper.

Secret shoppers in Nevada are employees, not independent contractors. You must be registered with the state as an employee of the P.I. licensing firm. The P.I. firm pays the fee to register you. Because you are an employee, some companies will want you to work for them exclusively, while others will be open to you working for other companies. As an employee, you will receive a W2 form showing how much you earned and the taxes withheld, not the 1099 used for independent contractors.

The process of hiring shoppers is often different in Nevada. Because you will be an employee, and the company must register you with the state, you may go through one or more interviews (in-person or over the telephone) before being hired. After you are hired, you may be required to attend training programs held by the mystery shopping company.

To become a mystery shopper in Nevada, apply to a company that has the proper Nevada licensing. These companies include:

Service Sleuth
http://www.servicesleuth.com/

QSI Specialists
http://www.qsispecialists.com/

Bestmark, Inc.
http://www.bestmark.com/

The Benchmark Collaborative
http://www.benchmarkco.com/

Update (9/17/10):
A Closer Look is now licensed in Nevada.
http://www.a-closer-look.com/

Sorry to be the bearer of bad news, but speeding tickets and other fines are considered personal expenses by the IRS and they are not deductible. (Yet another reason to watch your speed.) Although I am not a CPA or tax professional, I consulted information from the IRS, and they are pretty clear on this.

A quick search of the IRS web site turns up Publication 463, Travel, Entertainment, Gift, and Car Expenses. According to this publication:

You cannot deduct fines you pay or collateral you forfeit for traffic violations.

The same rule would apply to other fines or tickets you received, such as parking tickets, even if you were on business at the time. Of course, you may deduct fees paid for parking (e.g., in a lot or garage or at a meter) when incurred for a business purpose.

So the lesson here is that breaking the law can quickly turn a profitable mystery shopping trip into an unprofitable one. Keep yourself safe and profitable by watching your speed and obeying other traffic laws, whether you are on or off the job.

Now, if you were hired to mystery shop the local police department, that might be a totally different situation. ;o)

Sometimes just being able to hear your voice on the recording is a great help. It is always legal to record your own voice. So, set the recorder so that the microphone has minimal sensitivity and range, and you pick up only your own voice. For example, you might try not using an external microphone or positioning the mic in such a way that it does not pick up other voices. Or, set the volume at a low level so that other voices are unintelligible.

One great thing about using a digital voice recorder (DVR) to record shops is that you can use the recording to confirm timings. So, put the DVR in a pocket or purse and set the volume to a low level. Note the time you start the shop, and make a sound that will be picked up by the recorder. For example, you might cough or tap the recorder. Then, each time something occurs that you must time, make the sound again. When you go back to review the recording, you will have your coughs or taps marking each needed time.

You may also use your recorder to make voice notes to yourself about a shop. Some DVRs look like cell phones, so you could hold it as if you are making a call, and record your notes about the shop. Of course, make sure you can not be overheard by the employees. Some shoppers speak in “code” to remind themselves of certain aspects of the shop. You could also do this with the memo feature on your cell phone.

Leave your DVR in the car, and do a “brain dump” immediately after the shop. As soon as you are out of sight of the location, turn on the recorder and start capturing all the details of the shop while you are parked nearby or as you drive to the next shop.

A DVR can be a helpful tool for mystery shoppers. Use it legally and ethically to make shopping easier and your reports more accurate.

Cathy Stucker is the author of The Mystery Shopper’s Manual.

First of all, let’s make it clear that we are talking about recording conversations to which you are a party. That means, for example, your conversation with a salesperson or server. It can also include telephone conversations, such as when the entire shop is conducted over the telephone or when you are required to call the location prior to an in-person shop. The laws may vary for in-person communications and telephone conversations, and for audio and video recording.

Laws in the United States (and many other countries) do not generally allow recording of conversations if you are not a party to the conversation. That means leaving a microphone or recorder behind to capture what people say after you leave, or recording the telephone conversations of others—even if those conversations take place on your phone–is not lawful. If you are not one of the people being recorded, you probably may not legally record the conversation.

When you are a party to the conversation, the laws vary by state (and, in Canada, by province). The simple explanation is that there are one-party consent laws and two-party (actually all-party) consent laws.

In a one-party consent state, at least one party to the conversation must consent to the recording. That means that if you are involved in the conversation, your consent is all that is required. Others do not need to be made aware of or consent to the recording.

In a two-party consent state, all parties to the conversation must be made aware of the recording and give their consent. However, there may be exceptions. For example, in some states consent may not be required if there is no expectation of privacy. For example, a conversation in a public place, such as a restaurant or store.

So what can you do in your state? There are several ways to determine what laws apply. A good place to start is the web site of the Reporters Committee for Freedom of the Press. They have a quick reference guide by state. You might also want to refer to the actual statutes in your state. Most of the state listings at the RCFP site cite the statutes that apply. You can then do an online search for the statute number, such as “Texas Code Crim. Pro. Art. 18.20.”

If the mystery shopping company asks you to record the shop, they may advise you that they have obtained the necessary consent. For example, I recently did some shops where I had to record my conversations with sales consultants, then upload the recordings to the mystery shopping company. Although I live in a one-party consent state, it was reassuring to know that the mystery shopping company and the client had signed consent forms on file from the employees, acknowledging that they are aware they may be recorded during the course of performing their duties.

Because most states and provinces require only one-party consent, there is a good chance that you may legally record your in-person and telephone conversations during mystery shops. But if you live in a two-party consent state, there is no reason to sell your voice recorder on eBay. There are still ways you may legally and ethically use your recorder on shops, and I will cover those in a future post.

Cathy Stucker is the author of The Mystery Shopper’s Manual.