When an independent contractor becomes an employee: A chain of events

When an independent contractor becomes an employee: A chain of events

When an independent contractor becomes an employee: A chain of events 450 450 Heidi McLean

Pumpkin spiced lattes! Babies! Generation Z (move over, Millennials)! What do they all have in common? They’re a constant reminder that there’s nothing so constant as change. With its ever-narrowing definition of an independent contractor, California is embarking on the real-time evolution of the gig economy. Here’s the chain of events a company and its workers might go through in response to such changes.

When the definition of an independent contractor narrows:

1. Companies reclassify employees… or not

When an independent contractor becomes an employee, her pay structure changes. Even if all the goodies afforded an employee (healthcare, time off, etc.) bring them close to their original pay in practice, their paycheck may look a lot smaller. That’s because it costs a lot more up front to have an employee and employers withhold taxes. While ICs are still responsible for paying taxes, they can also take advantage of many write-offs, which go out the window once they’re employees. Some employers like this structure, feeling it gives workers more ownership in the company’s success. Others say the structure makes their business model unsustainable.

In the latter case, they may restructure the job completely to avoid hiring more employees. Because often new laws precipitate more ways to get around those laws. Another way to avoid reclassifying is to simply operate business as usual and wait to be challenged. Especially in the case of smaller companies, history shows this could take years or not happen at all. Workers might not know or care about the changes. They may opt not to push out of fear or they may not be able to join together to get strong enough influence. This is a risky approach, but not unheard of.

2. Workers quit or stay

Once employers make their choice, employees make their own. If companies do decide to reclassify workers as employees, they then decide if the situation works for them. If not, they often quit (as we discussed in our last post). Some stay, preferring the stability that comes with being an employee.  Some may even get promoted under the new arrangement, as this article talks about in the case of Matthew Johnson, who’d been driving for several companies before becoming an employee at Perennial. With a greater presence at the office and familiarity with the ins and outs of his company, Johnson was able to make helpful suggestions that earned him new responsibilities and a promotion.

Many employers and workers alike viewed the previous arrangement as a symbiotic relationship that worked well for both the business owners and the workers they employed. So if their bottom line becomes unacceptable, workers may tap out and either increase work for their other clients or look for different work altogether.

3. Everything changes

No matter what happens, everything will change. This latest evolution in the economy will be replaced with another, which will upend the last. And so it goes. Again and again and again.  Tell it to the Gen Zer who has never burned a CD before. She still thinks she’s going to be young forever.

 

Note: Can’t get enough? We’ve covered misclassification in depth. See more here.

About PayReel:

At PayReel, we minimize the time and effort it takes to get you ready for your project. Rely on PayReel to assume all of the risk associated with worker classification and get back to the business at hand. We make sure you get everyone gets paid quick and easy, and have Client Relationship Managers on call around the clock to answer your questions. All you have to do is call 303-526-4900 or email us. The PayReel team makes live event, corporate media, and brand management payroll easier, faster, and seamless.

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