You may have read news reports about Grubhub winning the lawsuit filed by one of its drivers. The court decided that Grubhub’s drivers are, in fact, independent contractors, not employees, but don’t let this case lull you into thinking you don’t need to worry about classifying your workers properly.
Not only was this case decided in California (which may or may not be where your business is located), but it was decided on the specific facts of the case, in particular, the fact that Grubhub didn’t control how or when the plaintiff made deliveries, when he worked, how long he worked, his appearance, the vehicle he used for making deliveries, or who could ride in his vehicle while he worked.
Further, Grubhub did not require him to participate in any trainings or evaluate his performance. It also didn’t help the plaintiff’s case that he was cheating Grubhub, getting paid for work he didn’t do.
Businesses often prefer to characterize their workers as independent contractors rather than as employees, since independent contractors are responsible for their own taxes, including FICA, and are not subject to many of the laws protecting employees, such as wage and hour laws.
If, however, you treat someone as an independent contractor and that person is recharacterized as an employee by a government agency, significant penalties may be imposed.
Further, those who believe they have been misclassified as independent contractors are increasingly filing lawsuits against their employers.
Several factors are considered when determining whether a worker is an employee or an independent contractor. These factors vary from state to state and may also differ depending on the law involved, that is, the purpose for which the worker is characterized, e.g. for purposes of tax or workers compensation.
Generally speaking, if a person is under the direction and control of the employer, it is more likely that the person will be characterized as an employee. If a person performs the task for one employer rather than for many, this also strengthens the employment characterization.
On the other hand, if the individual performs similar tasks for several different employers and functions independently, it is more probable that the individual will be characterized as an independent contractor.
When the employer provides the tools, equipment and a place to work, it is more likely that the person performing the task will be characterized as an employee, but if the individual provides his or her own tools, equipment and supplies, the argument that the worker is an independent contractor is reinforced.
The place where the work is performed, whether the person has his or her own business license, as well as other relevant factors, may also be considered when determining a worker’s status.
To strengthen the argument that a worker is independent, you should have a written contract requiring the worker to furnish all tools, materials and equipment necessary to perform the work, to obtain all necessary business registrations, permits and licenses and to be responsible for hiring, paying, supervising and firing any employees working for that person, though statements in the contract are by no means decisive.
When assigning the work, you should be sure to allow the worker as much flexibility as possible with respect to how the work will be done; that is, your company’s main concern should be the finished product.
If you believe you may have misclassified some of your workers, you should look into the IRS’s Voluntary Classification Settlement Program (VCSP), which provides taxpayers with an opportunity to reclassify their workers as employees for future tax periods for employment tax purposes and offers partial relief from federal employment taxes for eligible taxpayers that agree to treat their workers (or a class of workers) as employees going forward.
Please let us know if you need assistance determining whether those who provide services for you or your business are to be treated as employees or independent contractors, if you need help drafting contracts for your independent contractors or employees, or if you are interested in the VCSP program.
Also, please feel free to contact us if you believe that your employer has misclassified you as an independent contractor.
