THE DANGERS OF MISCLASSIFYING EMPLOYEES In a recent rash of lawsuits being filed against Uber, the drivers allege that they have been misclassified as independent contractors when they really should be W-2 employees. These class action cases are now cropping up all around the U.S. Misclassification cases are becoming a serious issue for employers, with significant liabilities and penalties imposed upon them if they are found to have misclassified their employees. Specifically, small businesses attempting to avoid compliance with the Affordable Healthcare Act are being targeted. Many industries such as home care and restaurants, with numerous, short term workers are being misclassified as 1099 independent contractors rather than W-2 employees. Classifying an employee as an “independent contractor” means that the employer is exempt from paying benefits, complying with wage and hour laws, and complying with the Affordable Healthcare Act. In Uber’s case, the company also told its customers not to tip the drivers as the tip was included in the price. Uber also failed to reimburse its drivers for mileage and fuel costs incurred by them in the scope of their job. An employee being paid as an independent contractor pays 1099 taxes rather than the standard wage taxes incurred by employees and employers classified as W-2 employees. For more on Uber’s predicament, see the Wall Street Journal article of July 15, 2015 at http://on.wsj.com/1Io6VWx. Courts have outlined a lengthy list of criteria by which they will determine whether a worker qualifies as an independent contractor. Some of these elements are whether the employee controls his or her own work hours, condition, the manner in which the job is performed, etc. The California Division of Labor found that Uber controlled all aspects of the employees work, including hiring and firing decisions, scope of work, amount of pay etc. Uber argued that it was just a smartphone app that connected drivers with people who needed rides. The Division of Labor was not convinced and ordered Uber to reimburse its drivers for expenses incurred in the scope of their work. The upshot: employers should be aware of the worker classification rules to ensure compliance and avoid severe penalties.
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