Why Are Contractor Rights So Complicated?

As the freelance/contractor economy grows, the rules and regulations become more complicated, as are the definitions of freelancer, contractor, and gig worker. Typically, and this is not the case for all, a freelancer is self-employed and works for multiple clients. A contractor usually works for one client at a time, usually on longer projects. And a gig worker usually has short-term engagements with an organization (think Uber driver).

The rise of the gig economy created an entirely new class of contract workers, but the protections awarded to these was and still is lacking. Arguments for both sides opened up the conversation surrounding rights and payment allowances for gig and contract workers. The debate is certainly not new with Microsoft facing problems against it in 1999. However, it as recently surfaced again due to a high-profile Uber case. The unanswered question of who gets what right made many wonder: How did this get so complicated?

Currently, under United States labor, employment and tax laws, individuals fill out a W-2 form if they are employees or a 1099 MISC if they are not. However, as the gig economy grew — driven in large part by Uber — defining an employee versus a contractor became messy. Individuals were working full-time driving for Uber or Lyft, but they still were considered contractors, which caused problems when it came to liability, protections, and payment. Companies are responsible for a lot less when it comes to a 1099 worker versus a W-2 worker.

In 2015, the Department of Labor issued a memo to attempt to clear up worker classifications. It said that a worker who is economically dependent on an employer is considered an employee, not an independent contractor. Even if that person willingly filled out a 1099, they can still be eligible for rights and benefits full-time staff receive.

But the memo was not that clear, and courts eventually gave a six-point plan to determine economic dependence. Still, defining a worker remained problematic, as many individuals work for more than one company.

So what is the company responsible for and what is the individual responsible for? This question remained unanswered, but changes started to happen when Uber reached an agreement to settle claims alleging that it improperly classifies its workforce as independent contractors.

In April 2016, Uber reached a preliminary $100 million agreement with thousands of plaintiffs who sought additional compensation from the company for items not paid out such as expenses and tips. The agreement was thrown out by a judge in August, it did bring about some changes in the company.

Uber drivers could no longer be fired or “deactivated” for an arbitrary reason; instead, the company must provide “sufficient cause”. There are still lawsuits in many states seeking compensation for unfair wages or classification, and similar lawsuits have been brought against other gig employers such as Lyft. The deal showed that the law favors workers being classified as something other than “contractors” and forced other gig employers to take note.

For the past few years, there have been calls for a “third worker” category. This call became much louder after the Uber settlement, as advocates noted that these workers do not fall into the category of W-2 or 1099s. The gaming industry also uses a lot of contact workers. Employment agency TargetCW estimated that 10–15% of people working in the creative department of medium- and large-sized gaming developers are contractors and not actual employees. The reason for this? Employers save roughly 30% in costs classifying workers as contractors and not employees.

The push for a “dependent contractor,” or an “independent worker” came up during Presidential elections and certain government officials have rallied for this new classification. Independent workers are not employees because they are not economically dependent on one single employer; however, this type of worker still deserves certain protections under the law. Creating this third classification, whether it happens or not, would take much time and effort by lawmakers, many of whom are against the initiative.

What most likely will happen is more regulations and classifications for independent contractors, freelancers, and full- and part-time employees. For now, businesses must take responsibility to understand what type of worker they hired and classify that person appropriately. Though this can be a complicated process, Shortlist’s Workforce Management System can help create a fluid process to classify workers. Shortlist’s software manages freelancers, contractors, and vendors all in one place, making it easy to identify which people are which type of workers. The Workforce Management System ensures companies classify workers appropriately and that they send and save the necessary documents to work. Instead of enduring the headache of trying to classify workers, let an automated system do it. Find out more here.