fbpx

Human Resources, Payroll

The Gig Economy and Independent Contractor vs. Employee Classification

Good Day Compliance Warriors!

Are you ready to tackle a thought provoking HOT TOPIC: and the ?

Let’s do this!

Many businesses today are using the services of freelancers a.k.a. gig providers. These independent workers are treated as because they are not usually a permanent part of one business. But, how do you know for sure that treating these folks as 1099ers is going to fly when the auditors or investigators stop by?  Read on as I answer these questions and more:

  • How does the Gig Economy affect your business?
  • Are you running a business as a provider of “Gigs”? 
  • Does your Virtual Assistant qualify as an independent contractor?
  • How do you know if the DOL and IRS are going to be knocking at your door when they discover your association with this amazing and scary new class of independent business owners, freelancers and gig providers? 

custom_bubbling_cauldron_15528

I am writing this post from the view of a person heavily immersed in the Gig Economy. I operate BeAuditSecure.com and also provide e-Learning content creation to various clients. I use virtual assistants and other gig service providers for logo creation and various other art work that I need for new digital products I create. So, I can honestly say the  gig economy is alive and well here  at  Andere Seminars!

How do  I know that I am using independent contractors correctly?

To name a few:

  • I pay independent workers on a per job basis
  • They have no expectation of continued work
  • I don’t always use the same workers from task to task
  • I often use services like Fiverr and UpWork to find these people
  • I do not direct and control their work
  • I  am using them because they provide a service I do not
  • They are advertising online showing that they are not only interested in my business

Now, I will give you the  argument that the  DOL or IRS get the final say and could very well come in  and determine that I  have had  a string of short-term employees.  In my defense, I did use a part-time employee for most of last year. She worked 30-40 hours each week and  I paid  her as an employee. I  paid all of my employment taxes and carried workers’ comp. If you compare the two types of workers they are miles apart in how our work agreements were structured. I also have an Independent Contractor Determination Process that I created. My workers all pass through this process.

Let’s chat about the VA or virtual assistant. This is one of those areas I do get a bit nervous about. I don’t use the  same VAs all of the time. But, if I did I might be concerned that I would be the employer.

So, what would it look like if I use a VA who is clearly NOT my employee?

  • The VA would ideally be retained through a 3rd party. This would limit my liability. Possibly the 3rd party could be acting as an employment agency of sorts.  Take Uber for instance. Their drivers are being flipped over to employee status like crazy because they drive for Uber fares only or primarily. In some of the cases, this was the tipping point for re-classification as W-2 employees.
  • The VA would not only be working for me, but would also have other clients that they worked with simultaneously.
  • Payment would ideally be on a project by project basis and not hourly, weekly or monthly.
  • I would not promise to work with the VA ongoing. No expectations set for “employment”.
  • I would not necessarily require availability during particular hours.
  • I  would not train or provide training to the VA. If the VA did not have the skills advertised, I would move on.
  • I would hire the VA services from an ad they ran or a listing they purchased looking for clients as opposed to them answering an ad I placed.

Some of the most commonly misclassified “contractors” are found in the following positions:

  • IT
  • Consulting
  • Retired Executive “Consultant”
  • Corporate Officers
  • Virtual Assistants
  • At-home workers of many sorts (medical coding is a big one)
  • Janitors
  • Landscapers
  • Day laborers
  • Catering workers by the job
  • Sales and marketing jobs

There are many more and any of the above may truly be independent contractors. Classification is not a one size fits all process. We must understand the law and document how we know we are obeying the law. This way, when the auditors come to call we can answer the famous question “What made you think you could do  it this way” with confidence. This is the true meaning of Audit-Secure!

Now, check out my short video below. This is a PowerPoint presentation the DOL published in the second half of 2015 to help explain the 6 main factors auditors will examine when investigating your classification decisions. I have added my own brief commentary to each slide to help employers and managers create their own decision making process. As you listen, run through the various types of 1099ers used in your organization. Whether they be virtual or physically working on-site, you will need to create a determination process for your organization. You will also want to consider listening to the replay of my webinar where I spend about an hour and a half breaking down the DOL guidance we received in 2015 and offer some practical advice for how you can comply. I have created an entire Independent Contractor Classification Tool-Kit if you want to cut the time you will waste re-inventing the wheel.

Let me know in the comments below if you would be interested in the Independent Contractor Classification Tool-Kit.

Enjoy!

Until Next Time, Be Audit-Secure!

Lisa Smith

 

About LISA SMITH

Lisa Smith is CEO of Andere Seminars, LLC and Chief Content Developer at BeAuditSecure.com. Follow her on Twitter, connect with her on LinkedIn, listen to her Small Business Spoonfuls Podcast, and find more from her in Audit-Secure Authority at BeAuditSecure.com.

 

Log in or Register to save this content for later.
3 Comments
  • Marcia Schneider says:

    Can you point me to the tax law case where the auto detailer was ruled to have employees instead of subcontractors? I am a CPA who has a auto detailing client. I am trying to convince them they have employees instead of contractors.

    January 8, 2017 at 6:23 pm
    • Lisa Smith says:

      Hello Marcia,

      DOL looks at this very hard. Here is a DOL fact sheet for your industry. https://www.dol.gov/whd/regs/compliance/whdfs76.pdf Page 2, #7 mentions the typical problem DOL finds as the misclassification of workers as contractors.

      Here is one case dealing with this specific issue: See Rainbow Development, LLC v. Mass.Dept. of Industrial Accidents, 2005 WL 3543770, at *1 (Mass. Super. 2005). In that case, the Massachusetts Superior Court applied the MICL and determined that workers at an “auto detailing” establishment were not independent contractors because, in significant part, they performed all the work for the business, were supervised, and did not carry their own liability insurance.

      Hope this helps!

      Lisa

      January 8, 2017 at 8:24 pm
  • Brenda Thompson says:

    I am interested in the Independent Contractor Classification Tool Kit

    Thanks!

    January 31, 2016 at 9:25 am

Comments are closed.