Exclusive Interview with Michael Cardman, Legal Editor, XpertHR

"Prevalence Of Gig Economy Platforms May Bring Businesses A False Sense Of Security"

 

"The prevalence of gig economy platforms may bring businesses a false sense of security. Although many states have passed laws protecting businesses when they use “marketplace contractors” (like Handy or Fiverr) or “transportation network companies” (like Uber or Lyft), certain criteria must be met," says Michael Cardman, Legal Editor, XpertHR. In an interview with HR.com, Michael discusses about key factors to determine independent contractors, advantages and disadvantages of gig economy, and more.

Experts from the interview:

Q. How has Covid-19 impacted the gig economy? What is going to be the implication of this economy on the future of work and businesses?

Michael: Interesting question! It's hard to know for sure without hard data around this. I'd caution that I'm not an expert on the gig economy at large; rather, I specialize in the proper classification of workers. That said, I believe that the last time the BLS did a survey about the gig economy - which they call "contingent and alternative employment arrangements" - was in 2017. It's not part of their regular reports. Without good, broad national data, we're left to rely on anecdotal reports and surveys. One poll showed that ride services like Uber and Lyft went down while food and grocery deliveries like DoorDash and UberEats held steady. 

Another common theme is that workers laid off as a result of the pandemic turned to the gig market for work. It's tough to crystal ball what the implications are for the future of work and businesses, but if I had to make a prediction it would be that more traditional companies that have dipped their toes into the gig economy are rediscovering the advantages of the traditional employer-employee relationship. Case in point - look at Chipotle, which is raising its minimum wage to $15.00 in an effort to attract and retain workers. A lot of things just can't be done on a gig basis.

Q. What sort of new challenges will this work culture bring to the worker classification space?

Michael: The prevalence of gig economy platforms may bring businesses a false sense of security. Although many states have passed laws protecting businesses when they use "marketplace contractors" (like Handy or Fiverr) or "transportation network companies" (like Uber or Lyft), certain criteria must be met. And there is sometimes a chance that there could be a joint employment relationship between the platform and the company that hires the gig worker. All the more so now that the Biden administration is expected to repeal the Trump administration's employer-friendly joint employment rules.

Q. What are the risks and responsibilities associated with hiring independent contractors? 

Michael: There are two main risks. The first is compliance. If you misclassify a worker as an independent contractor, you could be liable for a variety of taxes plus interest, workers' comp premiums, health and welfare benefits, IRS penalties, reimbursement of business expenses, etc., etc. It can be quite costly. The second involves the possibility that you might want to retain the worker on a long-term basis. Hiring a worker as an independent contractor makes it harder to keep them beyond the scope of the contracted work. Responsibilities include drafting a solid IC agreement, managing the contractor in a way that avoids the need for reclassification, and fulfilling IRS reporting requirements.

Q. DOL (for the purpose of wage) and IRS's (for the purpose of payroll tax) definition of an employee, the ABC Test and individual state legislations, etc., today there are several policies that govern classifications. What are the key factors that employers be mindful of while classifying employees and independent contractors so that they do not misclassify?

Michael: Honestly, it's a mistake to consider anything as a "key factor." Many independent contractor tests specifically state that "no one factor is determinative" and that the circumstances of the relationship must be considered as a whole. That said, one common theme that runs through a lot of classification schema is the "right to control." If you need to control how the work is performed - the when, where and how - then it's probably best to hire the worker as an employee. If you care mostly about the final product and you are OK giving up about how it is achieved, then it is safer to treat the worker as an independent contractor.
 

Q. What is the status of the Trump Administration's Independent Contractor Rule, since the Biden Administration had announced plans to rescind the rule? What should be employers be mindful of when classifying workers?

Michael: The rule was formally withdrawn on May 5. Without the new rule, the FLSA's longstanding economic realities test will remain the standard for the time being. The Biden administration may issue a new rule. President Biden has said he will work with Congress to establish a federal standard modeled on the "ABC test," not only for the FLSA but for all labor, employment and tax laws.

Q. What sort of changes do you expect from the Biden Administration on this front in the future?

Michael: This is purely speculative, but the administration has signaled that it thinks the economic realities test is acceptable for the time being. Getting federal legislation based on the ABC test seems like a stretch right now, especially considering the narrow margins in the Senate. And frankly, I think they have bigger fish to fry. I expect to see them put an emphasis on greater enforcement of the existing scheme. The administration has asked Congress to fund more investigators for the DOL's Wage and Hour Division, which enforces the FLSA and other employment laws. In addition, the DOL is party to several court cases, which could help it shape how the courts interpret independent contractor classification in the gig economy.

Q. What are the common mistakes that companies do when it comes to classifying workers?

Michael: 

• Hiring a former employee as a contractor. It doesn't necessarily mean that a worker is misclassified, but it's definitely a red flag
• Having an ongoing, open-ended relationship rather than a project-based relationship with a clear goal and target end date
• Being the contractor's only client
• Classifying someone as an independent contractor just because everybody else in your industry does so too
• Over-managing the contractor
• There are many others, but this is a good sample

 

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