On July 16, the U.S. Labor Department issued a new set of guidelines that could spell trouble for businesses that routinely qualify their workers as contractors.
The move comes amid a string of lawsuits against companies that are based on a sharing-economy business model such as RabbitTask, Lyft, Uber, or Handy.
These firms usually employ independent contractors who often need to work on short-term projects, but some of their workers claim that the work tasks and conditions were of employees, not contractors.
Human rights activists and labor unions also complained that businesses would rather call a worker a contractor to keep labor costs at a minimum. For instance, you don’t need to provide a contractor with workers’ compensation, unemployment insurance, or to pay him or her for overtime.
Additionally, contractors carry the burden of all their Social Security taxes, while employers usually pay just a percentage because employees take care of the rest.
The Labor Department’s new guidelines are not laws, are just means of helping employers and courts interpret the current regulations. David Weil of the Labor Department’s wage and hour division believes that classifying workers as contractors works at the disadvantage of full-fledged employees
“It undermines all the legitimate employers who are doing the right thing … but they are put at a competitive disadvantage.”
Mr. Veil added.
He also noted that companies would rather work with independent contractors than support all the labor costs an employee implies. He deemed the issue a “growing problem.”
On the other hand, some critics complained that the department’s recent guidance is very fuzzy, so we should expect more lawsuits.
Richard Alfred of the law firm Seyfarth Shaw, whose clients are mostly employers, said that the directive was nothing more than an “unapologetic effort” to limit the ability of companies to work with independent contractors. Mr. Shaw added that the department seems clueless about the “realities of the modern workplace.”
Earlier this week, Democratic presidential hopeful Hillary Clinton also pledged to “crack down” on firms that misclassify their workers because they strongly challenge work protections.
According to a recent report from the Economic Policy Institute, up to 20 percent of companies fail to properly classify at least one of their workers. According to the new guidance, a contractor needs to be “economically independent” of the company he or she is working with. The department also said that what it is written in an agreement between two parties about the classification of the worker “is not relevant.”
Image Source: Inland Empire
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