WORKER CLASSIFICATION

If anything’s certain, it’s that very little is certain when it comes to the rumors and grand plans that often surround any President’s first 100 days in office.

Worker classification was a major focus during President Obama’s administration, which resulted in a rash of highly-publicized lawsuits and debates across the U.S. just as the on-demand economy was coming of age.

The Trump administration’s focus on that same unique issue might actually play out favorably this time around for employers who rely on independent contractors. But before you throw all your paperwork out the window—that doesn’t mean classification is going out the window, too. In fact, some states and localities might even tighten restrictions and increase punishments for misclassification in response to relaxed federal law.

In short, things are as up in the air as ever when it comes to the federal government trying to keep up with rapid developments in the on-demand economy.

Here’s what to do while you wait to see what President Trump’s first 100 days mean for the on-demand economy.

Be vigilant when it comes to compliance

Federal, state, and local regulations already change regularly; who knows how things could fluctuate as the government tries to get a grasp on how benefits, taxes, and everything else could and should shift as workforces get more and more non-traditional.

Don’t slack on the classification

The process of classification might eventually get easier, but it’s not likely to go away. If the current situation is any indication, it could even get a bit hairier for some states and localities as they react to uncertain or lax laws at the federal level.

The bottom line:

If you can’t (or just don’t want to) keep up with the rules and developments surrounding the on-demand economy—PayReel can keep up for you. Not only does our team manage worker classification, payroll, and payroll taxes; as the employer of record we even take on all risks associated with a variable workforce.

About PayReel

Producing multimedia content and executing live events is chaotic. At PayReel, we make sure our clients are able to hire who they want, when they want and that everyone is paid properly. Leave all payroll services and details up to the PayReel team so you can focus on pulling off a flawless production. Contact us anytime at 303-526-4900 or by emailing us here.

Relax. We got it.

Need a ride? Get a Lyft.

Want a meal? Here’s your hub for grub.

Need a bed? Skip the air mattress: Airbnb instead.

Companies providing on-demand products and services have revolutionized the economy. And Uber is at the front of the pack; pushing boundaries in both worker classification and technology. While this new frontier is sometimes undefined, it is still subject to fines and lawsuits—both of which are eating into Uber’s profits.

With its latest settlement of at least $84 million, Uber avoided having to classify drivers, who are currently independent contractors, as employees. The battle may not be over, but in the meantime, all businesses can learn a few things from Uber’s über settlement.

1) Communicate, Communicate, Communicate  

Fuzzy terms cause mistrust among employees, independent contractors, and consumers alike. Several disputes with Uber boil down to its lack of transparency. Los Angeles and San Francisco allege the company misled customers. Even Uber’s CEO Travis Kalanick acknowledged a communication failure with its drivers, saying,

“…as Uber has grown—over 450,000 drivers use the app each month here in the U.S.—we haven’t always done a good job working with drivers. For example, we don’t have a policy explaining when and how we bar drivers from using the app, or a process to appeal these decisions. At our size that’s not good enough. It’s time to change.”

2) Invest In Worker Classification

The complaints against Uber point to the fact that any gray area in how a worker is defined can cause trouble. What’s worse is that the rules for setting up an independent contractor aren’t always easy to interpret. In fact, we have a whole worker classification series as well as a worker classification quiz to help you understand the law and avoid costly fines. 

In addition to setting up independent contractors correctly, having an airtight system in place for consistently payrolling all of those contractors also protects against future headaches. Confusion over worker classification and inconsistent payment practices can lead to fines, lawsuits, and unhappy workers or customers—all of which are damaging to business. Any way you slice it, making sure you get it right up front is worth the investment.

Need help getting worker classification right? Well, you’ve come to the right place, because we’ve been doing just that for three decades. Contact us today and avoid the fines and lawsuits. 

About PayReel:

PayReel’s clients, who are some of the biggest companies in the world, are constantly immersed in the chaos of producing multimedia content or executing live events. PayReel makes sure they have the right contractors at the right time in the right place, and that everyone gets paid properly. And, most importantly, they handle every last detail—down to worker classification—perfectly while making sure their clients think nothing of it, so they can get back to doing what they do best.

Sorry, y’all: The five-second rule is bogus. Germs don’t offer a grace period before jumping on your food. Not even your last bite of the really delicious stuff. But that one about metal objects dissolving in a glass of Coke? Still up for debate. And we won’t be testing it to find out.

Myths can be dangerous, silly, or in the case of worker classification—bad for business.

There is a fine line between an employee and an independent contractor and laws surrounding worker classification are confusing. We’ve seen companies go to great lengths to comply with nonexistent rules, so we were compelled to bust one of the most damaging worker classification myths we’ve seen.

The Myth About Worker Classification

After a certain amount of time working for you, an independent contractor must be reclassified as an employee.

We think this myth likely comes from one-time best practices that were interpreted as hard and fast rules. Wherever the myth comes from, we’ve seen clients build all sorts of policies to get around the supposed law. We’ve seen them hire workers for six months, drop them for a period of time, and then rehire them, for example. Some companies even refuse to rehire independent contractors after working with them for a certain amount of time because they’re afraid they’ll have to provide all of the benefits associated with hiring an employee. Not only are these policies time consuming, but they can also hurt businesses that rely on trustworthy freelancers.

The Truth About Worker Classification

We think it’s time for everyone to bust the myth and bust free from self-imposed restrictions.

Here’s the liberating truth: If you find a good contractor and want to use them over and over, you can. There are rules, which vary by location, but there are also legal ways to keep your best people working for you.

If you’re confused by compliance laws and fear your workers are misclassified, PayReel can help. Reach out to our team of experts on all things freelance. Get away from the burden of onboarding, payrolling, and classifying your workers and focus on what you love.

About PayReel:

PayReel’s clients, who are some of the biggest companies in the world, are constantly immersed in the chaos of producing multimedia content or executing live events. PayReel makes sure they have the right contractors at the right time in the right place, and that everyone gets paid properly. And, most importantly, they handle every last detail perfectly while making sure their clients think nothing of it, so they can get back to doing what they do best.

Employee misclassification is on a lot of people’s minds. Hillary Clinton has even made it a part of her campaign. It’s pretty irritating that the rules are confusing, vary from state to state, and are often subjective, but there are a few standards that remain true across the board.

If you want to get all the rules straight from the horse’s mouth/in the government’s own words, you can get the whole scoop right here. This covers the 20 factors they consider in full, governmental legalese.

Skip the legalese and give me the highlights, you say? You got it. According to this article on Forbes, a few consistent factors apply to “most worker status cases.” Should you find yourself trying to defend your worker classification choice, the following elements are most likely to be considered:

• The employer’s degree of control over the worker
• The worker’s opportunity for profit or loss
• The worker’s investment in facilities
• How long-term the relationship is
• The worker’s skillset

As you are classifying and auditing your current classifications, start by examining the basics above and dig deeper when you’re ready.

In the meantime, check out our series on the subject:

Worker Classification: Top Ten Classification Compliance Mistakes

Worker Classification: 5 Reasons Companies Can’t Ignore Compliance Rules

Worker Classification: What’s the Problem And Why Should You Care?

About PayReel:

PayReel’s clients, who are some of the biggest companies in the world, are constantly immersed in the chaos of producing multimedia content or executing live events. PayReel makes sure they have the right contractors at the right time in the right place, and that everyone gets paid properly. And, most importantly, they handle every last detail—right down to worker classification—perfectly while making sure their clients think nothing of it, so they can get back to doing what they do best.

Employee misclassification is getting to be a big deal for the government and a bum deal for businesses. Back in 2000, Microsoft paid $97 million, plus legal fees, in a benefits dispute with its long-term temps. More recently, FedEx shelled out $228 million. And then there’s Uber, which just lost in a dispute over whether drivers were independent contractors (as Uber maintained) or employees (as the law determined). In short, this stuff matters.

Here are ten moves that increase your likelihood of ending up in hot, expensive water.

1. Letting contractors decide how they get paid

Businesses have the burden of responsibility here. Do your due diligence with each worker to determine their status and whether they should be paid via W2 or 1099.  Our worker classification quiz can help you identify your workers. When in doubt, engage someone with the expertise to guide you through it.

2. Doing something the way you’ve always done it

Similar to the above, if the law says it’s not okay, you will be held accountable—no matter how long you’ve done it without problems.

3. Not making sure workers are properly insured

When stuff goes wrong, you’ll be glad you took the extra effort. That goes double when there’s a lot of expensive gear around, which tends to happen frequently in the media industry.

4. Thinking you can eliminate risk by hiring an agency

Engaging a partner company with the right expertise is hugely beneficial and will help ensure that your business is on the up and up. But, the co-employment risk still exists. It’s still in both you and their best interest to know and implement the rules around worker classification.

5. Following the industry norm

Take a lesson from sibling dynamics here: The kid who gets caught doing the crime does the time—even if the sibling does it all the time undetected. Just because you or and you’re associates haven’t been caught with misclassified workers doesn’t mean you won’t be eventually. 

6. Downplaying the hype

The government has a lot of money at stake here. It’s in the news a lot for a reason and it’s not going away. Don’t ignore the rules because the government isn’t ignoring them either. 

7. Assuming day rates are compliant with the law

Although common in the video production industry, day rates aren’t always as simple to apply as they seem. It takes a lot of time and a complex system to monitor day rates and other compliance loopholes in every city and state.

8. Overlooking details of exempt vs. non-exempt

Workers are often called exempt when they should actually be paid hourly according to federal, state, and (sometimes) local law. Again, it’s hard to keep track of. Either invest in doing worker classification right the first time or cut a check to the IRS. 

9. Thinking this process is clear cut

The government provides guidance, but rules are ever-changing and never 100 percent clear. Asking a few questions and counting the checkmarks in the 1099 or W2 columns isn’t enough to ensure you classify someone correctly. If you are not an expert, you really need a partner. Engaging someone with specific industry experience who has endured audits is invaluable.

10. Forgetting that courts often rule on the side of the worker

The system is heavily weighted on behalf of the worker and the burden remains on the employer to do things right.

Yes, it’s important. Yes, it can be a pain. But there’s no need to cut the cord on independent contractors. Keep your worker classification processes at the front of your business priorities or hire a team that can handle your contingent workforce from onboarding through payrolling. 

Interested in learning more about worker classification? You’re in luck, we’ve got a whole series here.

About PayReel

Producing multimedia content and executing live events is chaotic. At PayReel, we make sure our clients are able to hire who they want when they want and that everyone is paid properly. Leave the details up to the PayReel team so you can focus on pulling off a flawless production. Contact us anytime at 303-526-4900 or by emailing us here.

Relax. We got it.

With the rise of the sharing economy, workplace compliance issues are surfacing at an alarming rate. Uber and similar enterprises have been at the forefront of news on the subject of late, but the IRS is expanding its attention. And when the IRS pays more attention to this topic, companies need to do the same or risk costly, damaging, and time-consuming consequences.

Here are five reasons you can’t ignore the rules:

1. Because the government isn’t ignoring it:

For years, government regulations have been lax, leading to the equivalent of a jaywalker’s attitude among businesses. The thought is that it’s okay to ignore the unnecessarily-restrictive law as long as you look both ways.

But as independent contractors rise in prevalence, the financial stakes for the government get higher. In response, government agencies have been ramping up their focus on the subject, not ratcheting down.

According to this white paper, in addition to the Internal Revenue Service (IRS) and U.S. Department of Labor’s attention to the matter, state task forces have been formed to “crackdown on businesses that do not pay unemployment insurance and workers’ compensation premiums or that withhold taxes for workers whom states claim to be employees and not independent contractors.”

2. Consequences are Expensive

There’s big money at stake. In addition to potential back pay for benefits, you’re looking at a per employee fine and potential legal fees, too. FedEx knows: They just shelled out $228 million in a mislabeling case. You can ask Microsoft who paid $97 million, plus millions in legal fees in a benefit dispute with its long-term temps, too. And most recently, there’s Uber which just lost in a dispute over whether drivers were independent contractors (as Uber said) or employees (as the law determined).

3. Here come the lawyers

Where the money goes, the lawyers follow.

According to the same source, it’s not just the government in the game, “Class action lawyers continue to target some of those same types of companies, seeking unpaid employee benefits, expenses and overtime for workers who are not treated as employees.”

Just when you thought government scrutiny was driving you crazy enough.

5. Because “We didn’t mean to” doesn’t hold up in court

When you knowingly misclassify employees as independent contractors, it’s called wage theft. When you do it accidentally, it’s called wage theft.

Yes, the rules are confusing. And like many things government, oh what a tangled web the federal and state laws weave. Some laws are interpreted differently from state to state and some tests used to determine status are subjective.

But there are some consistent contributing factors. For 20 relevant factors in considering status (straight from the horse’s mouth), see the IRS’s Present Law and Background Relating to Worker Classification for Federal Tax Purposes. It’s a good place to start.

5. Consequences to Credibility

In addition to the financial burdens and time-sucking nature of it all, your credibility is on the line. Getting audited is a PR nightmare and depending on the industry or nature of the client company’s business, the press would love to expose a company’s misclassification and actual or perceived abuse of labor laws.

Getting the government, lawyers, and media on your case is a guaranteed trifecta of pain.

It can be overwhelming, but even the chief misclassification enforcement officer of the federal government (Dr. David Weil, Administrator of the Labor Department’s Wage and Hour Division) recognizes there is a legitimate place for independent contractors, saying “the use of independent contractors [is] not inherently illegal, . . . [and] legitimate independent contractors are an important part of our economy.”

The best way to stay in the clear is to stay in the know. So get smart and there’s no need to burn your W9s and run for the hills.

See our intro post for a nutshell version of what worker classification is and why it matters to the IRS.

Need more?

Worker Classification: What’s the Problem And Why Should You Care?

Classifying Employees and Independent Contractors (A Cheat Sheet/Resource List)

About PayReel:

PayReel’s clients, who are some of the biggest companies in the world, are constantly immersed in the chaos of producing multimedia content or executing live events. PayReel makes sure they have the right contractors at the right time in the right place, and that everyone gets paid properly. And, most importantly, they handle every last detail perfectly while making sure their clients think nothing of it, so they can get back to doing what they do best.