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The Many Facets of Worker Misclassification


Many companies that utilize independent workers believe worker misclassification is just an employer tax issue. The truth is there are many federal and state agencies who are very interested in proper worker classification in order to provide workers with the benefits and protections to which they would be entitled to as employees. A few examples of government agencies and legislation that depend on worker classification include the IRS, state tax agencies, FLSA, DOL, state unemployment offices, workers compensation, EEOC, and Obamacare.

In a recent example of this dynamic, a driver whom ride-sharing service Uber had classified as an independent contractor was awarded unemployment benefits after the company ended their relationship. California’s Employment Development Department (EDD) awarded the driver up to $9,308 in unemployment compensation. That decision means the EDD views the driver as an Uber employee, since independent contractors are not eligible for unemployment assistance.

This development certainly adds another complexity to Uber’s ongoing fight as to whether its drivers are employees or independent contractors. But it also illustrates that worker misclassification isn’t just an income tax issue. The pressure for Uber is to classify its drivers as employees and give them employee benefits such as overtime pay and reimbursement for driving expenses, in addition to paying into unemployment and workers compensation on the workers behalf.

While the award directly affects only the one driver in question and doesn’t set a binding legal standard, it certainly could have an impact on the bigger question of whether all Uber drivers are employees or independent contractors. Uber is set to head to trial this summer in San Francisco federal court to fight a class-action lawsuit brought by California drivers who want to be classified as employees. A ruling against Uber could dramatically impact its entire business model, and could also cause problems for a host of other on-demand startups that rely on independent contractors to perform services for clients.

To process the driver’s claim, the EDD sent a nine-page questionnaire with 100 detailed questions specifically targeted to Uber drivers. The questions focused on a multitude of topics surrounding the driver’s working relationship with the company, asking about background checks, vehicle inspection, training program requirements, and performance feedback from Uber.

This unemployment award is in line with another ruling last year by California’s labor commissioner’s office, which found that a different Uber driver was an employee and entitled to employee benefits. But a 2012 ruling by the same office found that a different driver was an independent contractor. In fact, labor departments in 13 states, including Arizona, Florida, New York and Virginia — as well as the EDD in California — have found individual drivers to be independent contractors.

These contradictory rulings illustrate the complexity of the employee versus independent contractor issue. The matter is further confused because there is a wide range of federal and state agencies who are concerned about worker classification. Since there is no set definition of “independent contractor” for all regulatory purposes, it is entirely possible that the same individual will be considered an employee for purposes of one law and an independent contractor under another. Fortunately for companies that rely on independent workers there are experts, like TalentWave, who can validate worker classification and provide easy, safe, and efficient engagement solutions.


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