Exclusive Interview with Robert Jarvis, Lawyer and Professor of Law, Nova Southeastern University
"With Gig Economy, Worker Classification Will Become More Complicated In Future"
Posted on 05-31-2021, Read Time: 5 Min
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"In the past, we had only two types of workers: “employees,” who get salaries and benefits, and “independent contractors,” who get neither salaries nor benefits. In the future, we likely will have a third category of workers: “contractors” who get partial wages and partial benefits. Thus, worker classification, which always has been very difficult, will become even more complicated in the future," says Robert Jarvis, Lawyer and Professor of Law, Nova Southeastern University. In an exclusive interview with HR.com, Robert talks about the future of gig economy, the challenges this work culture will bring to the worker classification space and risks associated with it, among others. |
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?
Robert: The pandemic has caused the gig economy to reach new heights. This has occurred for two reasons: 1) workers were laid off from their regular jobs and therefore had to find new ways of earning a living; and, 2) the pandemic ramped up the demand for jobs that lent themselves to being “side hustles” (e.g., food delivery drivers). One source estimates that the pandemic caused the gig economy to grow by 33% in 2020. This same source values the current gig economy at $1.6 trillion.
Gig jobs are going to become even more prevalent in the future. During the pandemic, many workers discovered that they did not want to follow a 9-to-5 schedule; did not miss going to an office; and enjoyed being able to set their own schedules. Gig jobs offer exactly this type of flexibility, and therefore, will be very popular even afterlife gets back to normal. Indeed, a different source predicts that more than 50% of the U.S. workforce will be participating in the gig economy by 2027.
Q. What sort of new challenges will this work culture bring to the worker classification space?
Robert: In the past, we had only two types of workers: “employees,” who get salaries and benefits, and “independent contractors,” who get neither salaries nor benefits. In the future, we likely will have a third category of workers: “contractors” who get partial wages and partial benefits. We already are seeing this play out in California (due to Proposition 22, the ballot initiative that passed in 2020). Thus, worker classification, which always has been very difficult, will become even more complicated in the future.
Q. What are the risks and responsibilities associated with hiring independent contractors?
Robert: The greatest risk is misclassifying an employee as an independent contractor. This can lead to class action lawsuits; government audits; fines; liability for back taxes, interest, and penalties; and even jail. Even if a worker is properly classified as an independent contractor, a company must (a) avoid exercising undue control over the independent contractor (doing so will cause the independent contractor’s legal status to change to employee); (b) ensure that the independent contractor is appropriately licensed and carries sufficient insurance; and, (c) avoid “co-employer” situations, which can occur when companies share workers. Such sharing often happens when a company hires a staffing agency and fails to put proper procedures in place for dealing with independent contractors.
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?
Robert: As the IRS’s guidelines make clear, the general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work, not what will be done and how it will be done. Thus, the key factor is the level of control that the company exercises over the worker. Setting the worker’s hours; providing on-the-job training; closely supervising the worker; and providing tools to the worker are all examples of acts that likely will cause the worker to be deemed an employee. Additionally, if the worker is performing tasks that are integral to the company’s core business, it is likely that the worker is an employee and not an independent contractor. Lastly, true independent contractors have their own businesses, work for multiple customers, are not reimbursed for business expenses, and make their livings from the profits that their businesses generate.
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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?
Robert: On May 6, 2021, the Biden Administration rescinded the Trump Rule. There is a federal lawsuit pending in Texas that seeks to reinstate the Trump Rule, but it is unlikely to be successful. In the meantime, employers should continue to use the pre-Trump tests to determine how a worker should be classified. As always, when in doubt, the safest course of action is to classify a worker as an employee.
Q. What sort of changes do you expect from the Biden Administration on this front in the future?
Robert: The Biden Administration is committed to making it harder to classify workers as independent contractors. It also plans to hire more investigators to root out misclassifications and to increase the penalties for misclassification. It also will be pushing for a single national test to replace the many tests that now exist for determining how a worker should be classified.
Q. What are the common mistakes that companies do when it comes to classifying workers?
Robert: Again, the most common mistake is classifying an employee as an independent contractor. The second most common mistake is hiring a bona fide independent contractor but then exercising so much control over them that they become, as a legal matter, an employee. The third most common mistake is failing to have appropriate systems in place to avoid the first two mistakes.
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