{"id":5007,"date":"2022-07-14T10:00:53","date_gmt":"2022-07-14T17:00:53","guid":{"rendered":"https:\/\/berkonomics.com\/?p=5007"},"modified":"2022-07-19T09:51:44","modified_gmt":"2022-07-19T16:51:44","slug":"employee-vs-contractor-here-we-go-again-2","status":"publish","type":"post","link":"https:\/\/berkonomics.com\/?p=5007","title":{"rendered":"Employee vs. contractor: Here we go again."},"content":{"rendered":"

Why revisit this issue now?<\/strong><\/p>\n

Several years ago, I wrote an extensive article on the ten most important tests of a\"\" company in classifying a person as an independent contractor.\u00a0 See http:\/\/berkonomics.com\/?p=662<\/a> for that important insight.\u00a0 But things have gotten much more complicated over the years, partly because of the Uber, Lyft and other new generation of GIG workers and the best description of their class as \u201csemi\u2013independent.\u201d<\/p>\n

Enter the Department of Labor\u2026<\/strong><\/p>\n

But now we must weigh in with the U.S. Department of Labor definitions as well as the Internal Revenue Service and try to make sense of the mix.\u00a0 So here goes:<\/p>\n

The Department of Labor (in its Fact Sheet #13) lists six classes of test for independent contractors:<\/strong><\/p>\n

    \n
  1. The extent to which the work performed is an integral part of the employer\u2019s business. (If high, then employee.)<\/em><\/li>\n
  2. Whether the worker\u2019s managerial skills affect his or her opportunity for profit or loss. (If high, then employee.)<\/em><\/li>\n
  3. The relative investments in facilities and equipment by the worker and the employer. (If worker is even remotely high, then independent.)<\/em><\/li>\n
  4. The worker\u2019s skill an initiative. (If initiative high and unsupervised, then independent.)<\/em><\/li>\n
  5. The permanency of the worker\u2019s relationship with the employer. (If high, then employee.)<\/em><\/li>\n
  6. The nature and degree of control by the employer. (If rules are great and control is high, then employee.)<\/em><\/li>\n<\/ol>\n

    The IRS guidelines cover the same principles, but\u2026<\/strong><\/p>\n

    [Email readers, continue here…]<\/em><\/span><\/p>\n

    The IRS combines these into three basic classes to test that relationship and classify the person in question.<\/p>\n

      \n
    1. Behavioral control: Does the employer have the right to direct or control how the work is performed through instructions, training or other means? (If yes, then employee.)<\/em><\/li>\n
    2. Financial control: Does the business have the right to direct or control the financial and business aspects of the worker\u2019s job? (If yes, then employee.)<\/em><\/li>\n
    3. Type of relationship: How does the worker and the business perceive their relationship? (More difficult. If each considers this a contract, there should be documentation, but that would lean toward independent contractor.)<\/em><\/li>\n<\/ol>\n

      \"\"And the IRS has many more tests within this grouping. (See my article referenced at the beginning of this for those.)<\/p>\n

      Is there a \u201cpre-determine test for independent contractor status?<\/strong><\/p>\n

      The IRS helps a bit by providing form SS\u20138 which can be submitted to the IRS for a pre\u2013determination of the status of a worker.<\/p>\n

      This is not a test to be considered lightly.\u00a0 The penalties for misclassification are onerous, and early-stage companies usually cannot afford the risk at the very time when they are most vulnerable.\u00a0 One more time:\u00a0 check out the previous article listed above for the ten tests.<\/p>\n

      And now, think of Uber, Lyft, AirB&B, and all the others that try to teach and enforce consistency, adherence to company rules, management of time, and determination of the quality of the worker\u2019s facility or vehicle or tools.\u00a0 And try to classify the worker using the above questions.\u00a0 It becomes very difficult, and certainly leads to conflict, potential lawsuits, and lack of easy resolution.<\/p>\n

      No\u2013one said that managing a business is easy. <\/strong><\/p>\n

      This range of issues just makes it even more difficult.\u00a0 Yet, the risk of betting the farm on a wrong classification of an increasing number of workers is too great to ignore this subject or not to understand its impact upon the business.<\/p>\n","protected":false},"excerpt":{"rendered":"

      Why revisit this issue now? Several years ago, I wrote an extensive article on the ten most important tests of a company in classifying a person as an independent contractor.\u00a0 See http:\/\/berkonomics.com\/?p=662 for that important insight.\u00a0 But things have gotten … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[8,1,20],"tags":[],"class_list":["post-5007","post","type-post","status-publish","format-standard","hentry","category-depending-upon-others","category-general","category-protecting-the-business"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/posts\/5007","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=5007"}],"version-history":[{"count":0,"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/posts\/5007\/revisions"}],"wp:attachment":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=5007"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=5007"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=5007"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}