Another lawsuit has hit the sharing economy. Less than two months ago, Sprig, which delivers organic meals on demand in San Francisco, announced that all its drivers would be employees. This week it got sued for, up until then, wrongly considering its drivers (whom it calls “servers”—big mistake) to be independent contractors. The servers will win, of course.
The penalties for calling an employee an independent contractor are steep:
- If employees had worked overtime without getting time and a half, the employer would face one fine ($50 per employee per paycheck) for not paying overtime and another ($100 per employee per paycheck) for not paying the full amount due to the employee in each paycheck.
- Even if the employer owed no overtime, it would still face one penalty ($100) to the employee and another ($250) to the state for each time it didn’t give a pay stub with a paycheck.
- If the employer doesn’t pay all overtime wages due before the employee quits or is terminated, the employee may get another 30-days wages.
- On any day that the employer did not provide a meal break to an employee who was entitled to one, the employee gets an extra hour’s pay.
- There’s a little penalty, anywhere from $5,000 to $25,000,for each employee treated as an independent contractor.
- Not buying workers’ comp insurance for those nonindependent contractors could lead to jail time and a fine of at least $10,000.
- The Internal Revenue Service looks unkindly on employers that don’t withhold taxes from employees.
So, how do you make sure that the people working for you are independent contractors? That’s the wrong question. Don’t even ask it. It’s like asking how I make sure that the knives I throw don’t hurt people. The answer: I don’t throw knives.
The right question is, do you have employees or independent contractors? Here’s the rule of thumb: if you have to ask, they’re employees.
A business should determine who it needs to accomplish a certain task:
- Does it need someone there regularly?
- Does the work have to take place on site?
- Can the person work for both the business and its competitors?
- Does the person need supervision or training? Does the person bring skills to the job?
- Most importantly, is the work to be done the firm’s main line of business?
The answers to these questions will determine whether whoever does the work is an employee or independent contractor. In my next post, I will explain how.