With the recent focus on Uber and the way it exerts control over its 1099-classified drivers (whom the California Labor Commissioner’s Office recently ruled should be classified as employees, not contractors), the definition of an employee is being hotly debated.
Also, modern business is changing. Many companies have teams that are “distributed” and offices that are “virtual”. Companies are using workers only as they need them, rather than opting for traditional full-time positions. The classification guidelines that were unclear in many situations in the past have become even more murky.
A Forbes article earlier this year reported that the Department of Labor issued additional guidance on how businesses should distinguish between employees and independent contractors. They recommended that employers incorporate “economic realities” when deciding how to classify a worker. The new guidance says that when ruling on a classification, the DOL will consider whether the employer is dependent on the worker to properly run the business and whether the worker is dependent on the employer for their livelihood.
This new guidance doesn’t make things much clearer, however. And part of the problem is that different departments at different levels of government have differing opinions. As the article points out, “Just because the California Labor Commissioner’s office calls a particular worker an employee doesn’t mean the IRS or DOL will use the same classification. And in a lawsuit, a jury may come to an entirely different definition of employee if that worker has caused an accident.”
When determining how to classify your own workers, we recommend that you err on the conservative side. Although you don’t want to spend more than you need to on costs associated with employees, misclassifying workers can be costly, even extremely so, depending on the situation.
If you have questions about worker classification, feel free to give me a call and we’ll schedule a time to talk.