July 8, 2016
A gig economy is an environment in which temporary positions are common and organizations contract with independent workers for short-term engagements. The trend toward a gig economy has begun. A study by Intuit predicted that by 2020, 40 percent of American workers would be independent contractors.
Years ago, the motivation for classifying an employee as a contractor was to avoid paying the employer’s share of payroll taxes, or reduce other potential liabilities. Now, the motivation is primarily ACA-based. Regardless, the IRS, Department of Labor and other administrative agencies (state and federal) are alerted to the practice.
The landmines for misclassifying employees as contractors are legion, but the practice nevertheless persists. Many employers hope not to get “caught,” but the net need not capture the employer directly for there to be problems. If the contractor is audited and a problem is discovered, we have learned recently of subsequent administrative enforcement actions against the employer for misclassifying employees as contractors. Such employers may have liabilities beyond tax assessments. Indeed, they may be responsible for unpaid minimum wage, overtime, and benefits.
The “control” test remains the benchmark against which classification decisions are tested, but we have seen some rather poor efforts lately to feign contractor status. Among these efforts are former employees who “retired” from being employees and are now performing their identical job function as a contractor for the same employer, and only for the same employer. This is a design that is fraught with liabilities for both the employer and the “contractor,” but the employer more so.
Powered by: James McMackin, III , partner, Morris James