Avoid Misclassification by Understanding the Role of the Gig Worker

In my capacity as both a regular contributor to Recruiter.com and a freelance writer, I spend a fair amount of time cruising job postings. In doing so, I’ve noticed a dangerous trend cropping up over the past few years: Employers commonly blur the lines between various types of gig workers, which can have nasty repercussion for both the workers and the companies themselves.

The freelance workforce topped 55 million workers at the end of 2016, making up 35 percent of the American workforce. However, one quick look at LinkedIn, Indeed, FlexJobs, and other top job sites shows a fundamental lack of understanding when it comes to gig workers.

Misclassification of workers can have serious consequences. Just ask the trucking companies that serve the Port of Los Angeles/Long Beach, who have paid out millions of dollars in settlements for classifying drivers as contractors instead of employees. In 2016, Uber drivers in California and Massachusetts won a misclassification suit that cost the company more than $100 million. In 2015, FedEx paid $228 million for misclassifying drivers. These are only a few of thousands of examples, with thousands more going unreported. On top of the risk of lawsuits, the IRS has also begun cracking down on the issue, which could mean more legal fees, audits, and back taxes.

Know What Type of Worker You Need Before You Post

Unfortunately for executives and hiring managers, the line between “employee” and “contractor” can be as blurry as the lines between worker types. According to the IRS website, “There is no ‘magic’ or set number of factors that makes the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.”

With only vague legal criteria standing between your company and a lawsuit, it’s important for recruiters and HR departments to know exactly what it is they need from a worker before posting a job. Here are a few terms commonly misused in job postings, along with their actual meanings:

1. Freelancer

The primary focus should be on the “free” prefix in this word. Freelancers are self-employed, and as such, are their own bosses. They withhold their own taxes and handle their own benefits. There should be a contract and a 1099 on file. Your relationship here should be client/vendor, not employer/employee.

A freelancer is someone who plugs a specific hole in your workflow. They can and should be used for both temporary and permanent assignments, but with the important distinction that the company does not control how they spend their time. You tell a freelancer what you need and when you need it. The freelancer is then free to determine how and where they go about meeting those deadlines. A job post seeking a freelancer should never be paired with terms such as “full-time” or “on location.” If you need a full-time worker to provide a range of skills in your office on a long-term basis, you aren’t looking for a freelancer.

Example: I work as a full-time freelancer. I receive monthly assignments from my regular clients and one-off assignments from other clients. I meet deadlines per the terms of my various contracts, but I get the work done from my home office on my own daily schedule. I invoice clients upon completion of the work; upon payment, I withhold my own taxes, which I pay quarterly without client involvement.

2. Independent Contractor

There’s some overlap between independent contract workers and freelancers (and some people perform both roles simultaneously for separate clients), but the main difference is that the company has a little more control over how the independent contractor provides their service.

An independent contractor is just that: someone whose role in the company is defined by a contract. That contract may require them to work remotely or in the office, to work certain hours, and/or to work full-time for one client. Depending on the specific project and length of time required to complete it, this could be either a 1099 or W-2 position. While some independent contractors do service multiple clients at once, the majority focus on one client at a time. The line here between “employee” and “contractor” becomes even more indistinctive, especially in cases where the worker is doing the same or similar work as full-time employees for an exceptionally long time period.

Example: A company needs a full redesign of their website and online presence, which is expected to take approximately six months. The company feels this will involve significant interaction with key personnel, so it brings on an independent contractor to work on location for the six-month period defined in the contract. When the task is complete, the relationship ends.

3. Agency Contractors/Temp Workers

Like the independent contractor, the agency contractor – or “temp” – comes onboard, often full-time, to do a specific job for a set length of time. The difference is that the agency contractor is an employee, but they are an employee of the agency they work for, not of the company where they work. The client pays a contracted fee, and the agency takes care of responsibilities such as the W-2, tax/social security withholding, and benefits packages. The client may choose to include or exclude the temp in various local perks (free lunch, discount arrangements, etc.).

Example: A full-time employee at a company takes a six-month medical leave. Rather than hiring someone directly to fill in, the employer contracts the position out to a temp agency, which provides a temporary worker to do that employee’s job until they return.

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It’s important to know what you’re looking for. Misclassification often happens on accident, but one mistake can have a profound negative impact on a company’s brand image. In addition, your employees and contractors alike deserve fair treatment commensurate with the duties they perform for you. If you need a gig worker, you should hire one. That’s what we’re here for, and we’re happy for the work. Just make sure you understand your needs and the limitations of using contracted employees so that you don’t incidentally overstep the bounds of your relationship.

This article is meant for informational purposes only and does not constitute legal advice.