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This Again? Big Companies Improperly Classify Contract Workers

Nov 18, 2014 10:49:00 AM

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According to Reuters, Google was sued this week by a worker who claimed the company did not pay overtime, improperly classified him as an independent contractor then terminated him after he asked for more hours to be covered under his contract. 

This again?  You’d think a company known for helping the world access the sum total of all human knowledge would be well equipped to search for (and read up on) the information needed to avoid running afoul of worker classification issues. Yet, despite very high profile cases of contractor misclassification like the $97 million Microsoft paid to settle a class-action filed by 10,000 contract workers and the numerous misclassification cases lost by FedEx in California, Illinois, and Massachusetts totaling many millions in settlements and legal fees, companies like Google still find themselves in hot water with the IRS over classification. Why don’t companies seem to learn this lesson?

After all, its not rocket science. If you require a worker to wear a uniform, show up at the same location at a specified time, direct the day-to-day nature of their workflow (and a host of other easily defined characteristics), the worker cannot be considered an independent contractor. The IRS (as well as many leading vendors of workforce management solutions) provides easy to follow guidelines and checklists for organizations to use in determining whether or not a resource can and should be classified as a contractor or not. So why do so many companies – especially technology companies – find themselves at odds with the regulation?

Valleywag.com explains why in this article about tech startup, Handy.com. Handy, it seems, is also in the throes of class-action litigation brought by former contractors alleging abuse via improper classification.  Valleywag says, “Handy uses independent contractors instead of employees—a popular tactic amongst startups like Uber, Lyft, Homejoy, SpoonRocket, Taskrabbit, and Postmates. The freelance model allows startups to drive down labor costs and spend millions on marketing cheap deals while they try to grow, grow, grow. That growth, however, comes at a steep cost for workers: contractors are denied labor protections, health insurance, worker's compensation, and they can be fired on a moments notice without unemployment insurance.”

The impetus for enormous companies like Google, Microsoft, and FedEx to improperly classify contractors may differ a bit. These large organizations may carry the strategy of engaging contractors as a hedge against market peaks and valleys way beyond its logical conclusion. Or perhaps it is because the disparate functional departments utilizing contract workers mistakenly believe their organizations are too large to be held accountable. Whatever the case, it is clear that nobody, no matter how large, is immune to being held accountable for breaking these rules. 

These cautionary tales are an excellent reminder for companies of all sizes to ensure there are clearly enunciated workforce plans and policies established and observed across the entire enterprise. A solid workforce management solution partner can play an instrumental role in ensuring compliance with the guidelines is enforced.  The often eye-popping expenses avoided by maintaining strong policies in this regard are not visible on the balance sheet at the end of every quarter.  But ask any shareholder of any of these companies if they’d prefer a larger dividend or a smaller one due to heavy penalties and fines.  I think we all know how they’d respond.

 

  

Topics: Blog, Compliance Services

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