And again and again. The seemingly never-ending debate and decisive determination of whether a company’s independent contractors should be considered employees rather than, well, contractors rages on.
Resulting from a very recent California Labor Commission ruling against Uber, the global car service and app that connects travelers with private chauffeurs, drivers are now recognized as employees and not contractors. Although Uber is appealing the ruling the car service may be on the hook for driver costs e.g., payroll taxes, overtime and healthcare, not to mention potentially large legal fines. Additionally, pressure is mounting for other companies to reassess the labor classification of their contractors.
Uber isn’t alone in this litigious wrangle. Other app-based services are under fire as well. Shannon Liss-Riordan, the lawyer who filed suit against Uber, has also filed suit against Uber’s key competitor, Lyft. To be sure, on-demand car service apps are not being singled out. Caviar (restaurant food delivery service), Homejoy (professional house cleaning), and Postmates (local courier delivery service) have also seen lawsuits filed against them by Liss-Riordan, whose legal specialty is in labor misclassification.
The message is clear. Business enterprises must classify their workers accurately to ensure laws are adhered to and, more importantly, guarantee independent contractors (ICs) and freelancers are not shortchanged financially.
This is not new news. Among the most notable of cases subsequently resulting in enormous financial repercussions for an American corporation is the landmark case against Microsoft, in 1996. Under IRS rules, the apparently evident integration of Microsoft ICs into the Microsoft workforce violated the very definition of “independent” contractors. Under IRS rules, a worker is an IC “if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done workers.”
The final cost? Almost $100 million dollars from the Microsoft budget, paid to nearly 12,000 misclassified ICs – those that should have been classified as employees.
That was the 1990s. To better convey the provenance of labor misclassification, further background is in order.
How about 1944?
According to Bloomberg View, in 1944 Supreme Court Justice Wiley Blount Rutledge wrote, “Few problems in the law have given greater variety of application and conflict in results than the cases arising in the borderland between what is clearly an employer-employee relationship and what is clearly one of independent entrepreneurial dealing.”
The rules can be complicated.
For the IRS, degree of control and independence must be considered. These fall into three categories: behavioral, financial and type of relationship, each of which are common law rules to determine whether a worker is an employee or an IC.
For organizations whose purview does not entail sorting out the legal ramifications – and rights – of employees, SDI capably steps in.
SDI provides comprehensive risk and liability analysis for all consultants and ensures that consultants who claim independent status have all the necessary documentation to qualify as independents under specific regulations. Our Independent Contractor Compliance Programs (ICCPs) also offer a variety of alternative solutions for managing small suppliers found not to be in compliance.