Employers’ Risk

So where does the risk within the Human-Talent Cloud and Gig Economy exist?

Within this flexible and free platform, there are a unique set of challenges and risks for any size or type of organization. To some degree, managers and supervisors have limits to the control they have over gig workers, including performance and engagement with other members of the organization, not to mention understanding legal obligations.

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For employers not understanding what the law requires and what their responsibilities are can be a real issue. There is an increased risk of introducing non-compliant practices into the organization. With regards to labor employment law and where an organization’s liability begins and ends when working with independent Gig workers is a very gray area. Laws related to occupational safety, health administration requirements and equal opportunity hiring all come into question.

Many gig-type organizations have been sued because they failed to treat gig workers like employees. One example is Homejoy, a house cleaning service backed by $40 million in venture capital money closed down its business partially because of lawsuits over whether its workers were contractors or employees. More extreme case examples are when Microsoft paid $97 million to settle a lawsuit brought by misclassified temporary workers and FedEx paid $228 million to resolve a case with delivery drivers who FedEx claimed were independent contractors.

One of the largest areas of concern for employers are if a federal or state agency deem the workers of an organization to be employees rather than independent contractors. In this case, there is now potential exposure at the respective state and federal levels, which presents many legal and financial risks for the employer. If an employee is misclassified by an employer as an independent contractor, penalties may be assessed by the IRS under Internal Revenue Code Section 3509. Penalties vary depending on whether misclassifications are willful or not, and if not willful, whether proper returns were filed. If the employer willfully misclassified the worker, the penalties will be equal to the full amount of taxes that should have been withheld (income, Social Security, Medicare and the employee match). Additionally, under Internal Revenue Code Section 6672, this penalty can be assessed simultaneously on the company itself and on its officers, personally, if they are deemed to be responsible.

Numerous lawsuits seek to reclassify people working individual gigs as employees instead of independent contractors.

Potential Exposures

• Wage and Hour Violations – It is possible that some of the workers should be classified as hourly non-exempt, which means they are entitled to overtime
• Affordable Care Act (ACA) Penalties – if deemed to be a large employer (ALE) with 50 full-time equivalent employees
• Benefit Exposure – This includes, PTO, Sick Pay, 401(k) matching contributions, stock options, other
• Workers Compensation – Possible exposure for not carrying the legal amount of workers compensation insurance

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Other Potential Exposures/Penalties

• Federal and State penalties could include late filing fees
• Agencies can expand audits back 3 to 4 years
• If the auditor deems the classification was “willful,” this opens up a number of penalties both federal and state. There could be personal liability for the responsible individual(s)Numerous lawsuits seek to reclassify people working individual gigs as employees instead of independent contractors.

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