The misclassification of workers has increasingly become a complicated (and potentially costly) issue for most businesses. It starts with the business owner’s decision to classify certain workers as independent contractors instead of as employees. If classified as an independent contractor, the worker is responsible for keeping track of and paying his or her own Social Security and Medicare taxes. The company has no requirement to pay overtime or minimum wage or pay unemployment taxes. And, there is no obligation to verify the contractor’s “right to work” status (e.g., e-verify).
An independently established business that promotes or advertises the same or similar services to the public clearly qualifies as an independent contractor. But, if the company has an ongoing priority over the worker’s time and efforts (e.g., because the worker exclusively promotes the sales of the company’s products or services), then the company may be accused of misclassification.
If the government determines misclassification has occurred, then the company may be subject to multiple penalties and fines as well as having to pay back wages for all employees affected.
A recent example is Uber. Currently, Uber faces lawsuits nationwide alleging it has misclassified its drivers as independent contractors. While some states disagree with these allegations; others, such as California, appear to agree.
The issue of worker misclassification is constantly evolving. Careful thought must be put into whether or not to classify a worker as an independent contractor. Misclassification can lead to costly litigation like the pending Uber lawsuits. So far, courts have analyzed these lawsuits under state law, so the factors which they have used varies from each state. Generally, though, the courts which have taken up this issue have looked to:
- the amount of control exercised by Uber over its drivers;
- the agreement signed by drivers when they are hired by Uber; and
- how drivers operate and perform their work.
We are happy to analyze any specific contractor relationships you currently have to determine if there is a misclassification threat. Let us know if you would like to schedule a phone call or in person meeting.