Who are you, gig worker or employee?

By Michelle V. Rafter

Sept. 3, 2017 6 AM PT

As a gig worker, you decide who to work for. You pick the tools you think are best for the job, and decide when, where and how to work. You’re the billing department, and if need be, in charge of chasing down late payments. Taxes, insurance, saving for retirement -- it’s all on you.

It’s quite different from being an employee, where a good chunk of when, where and how you work is decided for you, and paychecks come like clockwork, minus the usual deductions.

But as more companies farm out duties to contractors and more people leave the ranks of full-time employment to become self-employed, the lines between gig worker and employee have gotten fuzzier.

Companies such as Uber, Lyft, GrubHub and, TaskRabbit have added to the confusion by using legions of people to provide the services they offer.

Those employers claim that the people they hire to drive, deliver or provide other services are independent contractors. Some of those individuals and their supporters maintain that they should be classified as employees because of the conditions under which they work, and because the businesses wouldn’t exist without them.

It’s not a minor quibble. Disputes over employee misclassification have led to multiple lawsuits and drawn the attention of state and federal regulators.

“Misclassification is a serious issue,” said Sara Horowitz, founder and executive director of Freelancers Union, a nonprofit that supports gig workers.

Understanding the difference between independent contractor and employee is important if you’re considering working for yourself. It’s also important if you’re job hunting and want to know if the position you’re after is contract work or a staff job with benefits and perks.

Employee Misclassification Lawsuits

California has been a hotbed for employee misclassification lawsuits filed against companies such as Uber and GrubHub. A suit against the latter scheduled to go to trial in California federal court in September is being closely watched because it is the first case of its type to make it to the final phase of litigation. In dispute: whether a former GrubHub driver was misclassified as a contractor and therefore was denied rightful employee benefits such as unemployment, insurance and expense reimbursements.

In March Lyft paid $27 million to end a class-action lawsuit brought by 95,000 drivers in the state who sought to be classified as employees, however, the settlement did not address the question of the drivers’ worker status. In 2016, Uber proposed a $100 million settlement to end similar legal challenges brought by some of its drivers, but it was rejected by a federal court judge in North Carolina. In July, the same court gave Uber drivers permission to proceed with a class-action lawsuit .

Under the Obama administration, federal regulators had sought to make the distinction between employee and gig worker clearer, but President Trump’s efforts to cut government red tape reversed that. In June, the Labor Department rescinded guidance it had issued in 2015 meant to help companies clarify who is and isn’t an employee. The retracted guidelines from the department’s Wage and Hour Division elaborated on standards partly based on an “economic realities” test that could help show if an individual is economically dependent on an employer or in business for him or herself. Current Labor Secretary Alexander Acosta has said using guidance memos to set policy sidesteps more formal rulemaking; the department has not indicated what additional actions it could take, if any.

Getting Started as an Independent Contractor

Lawsuits and changing government policies don’t appear to be stopping people from setting up shop as gig workers. Last year, 55 million people in the United States engaged in some type of gig work, up 3.7 percent from 2014, according to a 2016 study conducted for Freelancers Union and Upwork, an online platform that helps companies find gig workers.

If you’re an independent contractor, you can take steps to establish yourself as a business entity to avoid appearing like an employee of companies you work with. Have an office, even if it’s a home office. Print business cards. Create a website or blog about what you do. Advertise. Apply for a business license. Carry insurance. Get an employer identification number from the Internal Revenue Service. Negotiate with clients to be paid by the job, not by the hour. Hire subcontractors when you take on more work than you can handle alone. By doing all those things, “it will make someone hiring you comfortable that you’re holding yourself out to the general public as an expert at what you do,” said Gabrielle Worth, an employer defense lawyer with Dorsey & Whitney LLP in Costa Mesa.

You may consider yourself an independent contractor, but technically you may be an employee if you work mainly for one company, or the service you provide is integral to the company’s business. You may also be an employee if you’re paid by the hour, work from the company’s office, have a company email address, are required to use their equipment, or must attend their meetings and functions.

To avoid being classified as an employee, the rule of thumb has been to work less than 1,000 hours a year for one company, which equals about 48 percent of full time, Worth said. More important than that is showing that a company doesn’t control what you do. “The moment they do that, you’re dead” as an independent contractor, she said.

If you aren’t sure of your status, you could fill out IRS Form SS-8 to request a determination of worker status, prompting the agency to decide whether you’re an employee or contractor. “The problem is for employers if they made a mistake, the penalties and taxes are really heinous, it discourages them from coming forward and switching it around,” she said.

Tips for Job Hunters

If you’re looking for work, one way to determine if a job you’re interested in is an employee position or really contract work in disguise is by asking about schedules, said James McDonald, managing partner with employer defense firm Fisher & Phillips LLP in Irvine. Ask if you’re required to work a schedule set by the employer or if you can work for other employers, too. Other questions to ask: whether you’ll be paid by the hour or the job, if the company will withhold taxes from your paycheck, and if you’re eligible for benefits such as health care insurance.

“In some cases it’s black and white” whether a position is contract work or not, McDonald said. “Many cases fall somewhere in the middle. Just the fact that a person has a company email address wouldn’t make them an employee, or being asked to attend meetings.”

Learn more

Worker Misclassification - This California Department of Industrial Relations site at www.dir.ca.gov includes an FAQ that details differences between independent contractors and employees, and also lists instructions for filing a wage claim with the state labor commissioner’s office. Employers can go to the state’s Employment Development Department and use a PDF worksheet to determine if a worker is an independent contractor. They can also call EDD’s Taxpayer Assistance Center at 888-745-3886 for help.

Independent Contractor (Self-Employed) or Employee? - Updated in April 2017, the Internal Revenue Service site — www.irs.gov — is a compendium of information on employee misclassification for employers and self-employed workers, with links to rules, forms, tax guidelines and other relevant information.

IRS Form SS-8 - If you’ve reviewed IRS information and still can’t determine whether you’re being miscategorized as an employee, fill out this form and the IRS will review the facts and make a determination, though results could take up to six months, according to the agency.

Freelancing in America 2016 - A 2016 study commissioned by Freelancers Union and Upwork at www.upwork.com offers some of the latest statistics on gig workers and the gig economy.

Michelle V. Rafter writes about jobs and employment issues. Contact her at michellerafter@comcast.net or find her on Twitter @MichelleRafter.

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