What’s the current status of gig workers in the United States?
It’s not easy to determine the current status of “gig workers” in the US because state and local laws may add worker protections or confusion. Businesses need to be familiar with these laws everywhere they have workers providing services for them.
It might be the state case law and actions by administrative agencies that catch more businesses by surprise than any decisions at the federal court level. For example, the New York State Department of Labor might find that an Unemployment Insurance claimant was an employee, not an independent contractor, and demand an audit of all similarly situated workers. The auditors’ determinations will not be public, which gives the DOL a lot of power to assess penalties and limit opportunities to appeal. Likewise, the NYS Workers Compensation Board might find that an injured worker should have been classified as an employee and covered by WC insurance. The business could then be responsible for the underlying claim, as well as penalties for failure to insure that worker. Since the NYS WCB is also an administrative agency, most decisions are non-public, and the state legislature has given the Board broad discretion to implement rules that limit defenses and appeals. Thus, certain states might be a larger concern than the federal government.
It is likely that many “gig economy” workers are employees. An independent contractor is generally an independent business owner with a contract, and it’s highly unlikely that a food delivery person is operating a business in that space and has a valid contract with the business that created the app. As such, we will probably see the delivery persons being deemed employees of the businesses for which they deliver goods, or they will be encouraged to form independent businesses, obtain their own insurance, and operate with greater awareness of their rights and responsibilities.
In my professional opinion, many gig economy workers are misclassified as independent contractors, and we need to do more to:
- Make the distinctions clearer and more consistent across all states
- Educate business personnel and workers
- Help those who truly want to run businesses do that with full awareness of their risks, benefits, rights, and responsibilities
- Punish those who abuse the system, whether they are businesses or workers avoiding tax payments and other liabilities
What tips do you have for gig workers in 2021?
This has been a busy year for disability, Paid Family Leave, unemployment, and workers compensation penalties, in part because Pandemic Unemployment Assistance was available to independent contractors. This gave the Department of Labor (“DOL”) and Workers Compensation Board (“WCB”) a lot of data on workers who are often overlooked. It was good for the “gig workers” who needed temporary income replacement, yet it raised new issues for those who had not previously considered themselves independent business owners. It also raised issues for their customers or clients that hired gig workers for ongoing, short-term assignments. In many cases, the DOL or WCB workers deemed employees the workers these businesses had designated freelancers, gig workers, independent contractors, or permalancers—regardless of whether the worker wanted to be an employee. Even the presence of a contract might not be enough to overcome the DOL or WCB determinations. Thus, for the gig workers who like their independence, now is the time to formalize your business structure:
- Register as a business. The nature of your work will determine whether it is best to form a separate business entity to hold the liabilities. The higher the risk of injury to you, people you encounter, or their property, the more protection you will want for your personal assets. Likewise, the more assets you have, the more protection you might want. Consult an attorney and an accountant to help you decide the best business structure for you.
- Review your contract(s). Notify the business you work for that you have formed a separate business entity and need to revise the contract to reflect that. Renegotiate any terms you felt compelled to accept because you were still viewing yourself as an employee.
- Market your business to other businesses. Don’t rely on one client for all your income. That’s what employees do, and you probably know that doesn’t always work out well.
Should all gig workers incorporate?
One of the advantages of forming a separate business entity for providing your services is insulation from legal liability for injuries to people and property, as well as taxes. You won’t be free from all liability. You could still be personally liable for failure to insure workers who are deemed your employees or failure to withhold taxes. This is one of the reasons a lot of larger businesses want to classify you as an independent contractor and have you hire any subcontractors. They are passing their liability to you, so make sure you consult an attorney and an accountant before signing any agreements and forming any entities. You don’t have to reject such a relationship, but you do need to understand the consequences of it.
One of the disadvantages of incorporating is the potential for double-taxation, if you do not properly elect Subchapter S tax treatment. There is also more paperwork that you need to stay on top of, and this might not be what you signed on for as a gig worker. If you have been thinking of this as a special class of employee, think again. There is no such thing as a 1099 Employee. You’re either an employee, or you are an independent business owner with a contract. If you do not fit neatly in one of those categories, I recommend that you consult an attorney to ensure you fully understand your rights—including any you are waiving—and your responsibilities.
Each industry is unique, but we generally look at risk, when determining which entity is most appropriate. The higher risk you have of injury to a person or property, including electronic assets, the more likely you are to need a separate entity (and insurance) to insulate your personal assets from attachment in the event something goes wrong in the business. The less experience you have in business or in the industry you are exploring, the higher the risk is of error, so you will be wise to consider a separate entity. Other things we look at are tax consequences and industry expectations. This is why I recommend that you consult an attorney and an accountant. Entrepreneurship is not for the faint of heart. Many have described it as building the plane while you’re flying it. So, don’t try to do everything on your own.
This post gives a general overview of the US gig economy. It is not legal advice, and it could be deemed attorney advertising. If you require information or advice applied to your unique situation, please consult counsel in each of the jurisdictions where you pay workers or are paid as a gig worker.
Want to formalize your business?
Nance L. Schick, Esq., is a workplace attorney, ethno-religious mediator, and conflict resolution coach based in New York City. Her goal is to keep managers and small business owners out of court and build their conflict resolution skills so everyone has a better work experience. She is creator of the Third Ear Conflict Resolution process, author of DIY Conflict Resolution, and an award-winning entrepreneur acknowledged by Super Lawyers (ADR, 2018, 2019 & 2020), the New York Economic Development Corporation/B-Labs (Finalist, Best for NYC 2015 & 2016), U.S. Chamber of Commerce (2015 Blue Ribbon Small Business), Enterprising Women Magazine (Honorable Mention, 2014 Woman of the Year awards).