Finance News & Insights

2 new rulings will make you question your company’s independent contractor calls

Wait! Before your Accounts Payable departments cuts another check for an independent contractor, you’ll want to take a look at two major court rulings that came out in recent weeks. 

There’s a chance those folks should be employees paid by Payroll. And that would mean they’re entitled to benefits, and workers’ comp, and should have employment taxes deducted.

Last month was a record month for litigation on the subject of worker classification. And employers rarely came up on top.

While several high-profile verdicts came down for mega-companies, there were plenty that involved small companies too.

And the learning is the same, no matter what your company’s size.

Take a look at the two questions all employers need to ask as a result of two of the most recent verdicts:

  • Uber, and
  • FedEx.

Uber: How flexible is flexible enough?

It’s the whole reason people want to be Uber drivers in the first place: the flexibility.

That was Uber’s argument in a case brought by an independent contractor classified driver in front of the California Labor Board.

The company maintained that its drivers are independent contractors because they have the flexibility and control to work how — and for whom — they work. That even includes the ability to work for other ride-sharing companies.

But the court disagreed. It ruled that the driver who challenged her status was indeed an employee. Two of the biggest factors in that decision:

  • The company provided drivers with phones, and
  • It had a policy of deactivating its app if drivers were inactive for 180 days.

Those factors meant the company likely had more control over the drivers than it claimed. As a result, Uber is on the hook for reimbursing the driver for business expenses, like gas.

(Note: That’s only for the employee in question and experts say this isn’t likely to change Uber’s entire business model, but there are other class action suits against it pending.)

The question for your company to ask: How flexible is the arrangement? One of the best ways to bat down an employee claim is to be able to prove this individual also works for other companies. If you can provide proof of that, keep it in that IC’s file.

Also, things like company-provided phones are a dead giveaway. If A/P notices those things are being paid for for independent contractors, it’s critical to raise a hand immediately.

FedEx: Can ghosts of ICs past come back to haunt us?

$228 million – that’s the price shipping giant FedEx now has to pay for misclassifying its drivers as independent contractors. And that’s only drivers in California!

While it’s unlikely a misstep at your company could result in that large a price tag, it’s a situation no one wants to get called on the carpet for.

One of the reason the bill is so high: The contractors in question went all the way back to the year 2000.

Which means that even if your company isn’t working with any ICs at the moment, your company could still find itself having to justify classification calls made over a decade ago.

The question for your company to ask: How thorough is our documentation, past and present?

Hopefully your staffers are staying on top of current IC files to make sure they’re complete and audit ready. But it couldn’t hurt to dig into those older files to get an idea of any past exposures you might have.

One thing you can count on: This issue isn’t going away anytime soon.

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