Tempted to fill a labor gap with a contract worker? Here’s what you should know before you do:
In 2019, California passed Assembly Bill 5 (AB 5 to) to reclassify freelance workers as employees rather than independent contractors. However, app companies, citizens, and many contract workers revolted, launching one of this year’s most expensive ballot measures – Proposition 22. Prop 22 passed 58.6% to 41.4%, essentially nullifying AB 5’s employee classification requirements. But with states like New York and Illinois considering laws similar to AB 5 and Massachusetts already strictly classifying workers under G.L.c. 149, sec.148B, you need to avoid making a hiring mistake that could cost you.
Gig workers offer small and large businesses the promise of flexible hours and significantly reduced taxes and benefits costs. While many of the estimated 57 million freelancers love the autonomy and control over time and earnings, others feel exploited at the loss of benefits. That’s why the Fair Labor Standards Act (FLSA) makes it is illegal for an employer to classify employees as independent contractors incorrectly.
The mystery of employee classification
If you are confused about classifying workers correctly, you are not alone. The Department of Labor (DOL) follows a Supreme Court ruling that establishes that the definition of contract work must be situational; therefore, there has been no single FLSA test to tell if a 1099 employee was indeed an independent contractor. The good news is the U.S. Department of Labor began the process to simplify classification in October.
For now, it is up to you and your lawyers to work out this potentially expensive problem. You might be misclassifying a freelancer if she meets these FLSA conditions:
- If your business success depends on her output
- If you have people managing or directing her daily performance
- She works solely for you with no opportunity for profit or loss
- If you provide her with all the materials with which to do the work
- If she has little autonomy over her schedule and other outside opportunities
Even if your hiree doesn’t meet the federal test, you could still be violating State standards. If you are worried, what should you do?
Assess your risk
If you employ independent contractors, know that a status error could be very costly. Lawsuits brought by a worker, the State, or the DOL are a cash cow for lawyers and the IRS. Between the DOL and the IRS alone, penalties can include a $50 fine for each W-2 you didn’t file, 1.5% of the wages, 100% of the FICA you should have paid, and 40% of the FICA not withheld for the employee. You can also be fined $1,000 per employee and even land in prison for up to one year! These penalties do not even include a worker settlement or back payments for state agency expenses like unemployment insurance.
But is there is an effortless way to lower the risk and remove any doubt about employee classification while also enjoying some of the benefits of independently contracted workers?
The safe choice for flexible hiring and lower costs!
Whether your business is slowly recovering from the COVID shutdown or ramping up and down due to variable demand, chances are you need flexible staffing. Fortunately, there is a better way to go than taking a chance on misclassifying a worker.
Partnership Employment comes alongside businesses like yours every day to supply the talented individuals you need right now without worrying about the legalities. When you work with our knowledgeable team, you can increase your staff without adding to your permanent payroll costs. You also get access to:
- Talented people, skills-tested and prescreened to meet your preset qualifications
- Flexible scheduling to meet demand when and where you need them
- The opportunity to try a candidate out and assess their skills before making a permanent offer
Lower Costs—Reduce Risks!
- Alleviate costs associated with taxes, workers compensation, unemployment, state & federal mandated benefits, healthcare, and more
- Reduce legal risks associated with co-employment, 1099 and part-time employees as well as unemployment claims and unlawful termination suits.
- Downsize full-time headcounts, comply with corporate hiring freeze policies, or manage an internal contingent workforce.
- Our team does invoicing, timecard processing, and reporting all through our automated system. Plus, you get dedicated access to an account manager if you need help 24/7!
Contact Partnership Employment today to help you remove the uncertainty surrounding today’s need for temporary or contract staffing!
