The U.S. Department of Labor (DOL) recently launched the Payroll Audit Independent Determination (PAID) program, which is designed to quickly resolve unintentional minimum wage violations under the Fair Labor Standards Act (FLSA) without penalty to qualified participants. Workers will benefit by swiftly receiving back wages that are owed, and employers can get into compliance without paying penalties. Employers must act quickly, however, since the pilot program is scheduled to end in about six months.
In January, 2015, the California Supreme Court granted review of Dynamex Operations West, Inc. v. Superior Court (Lee) (2014) 230 Cal.App.4th 718.
On the heels of the most recent development in the Uber worker classification dispute, the Internal Revenue Service has put together a free webinar about the differences between Employee and Independent Contractor worker classifications. Join the agency on May 12, 2016 at 2:00 pm EST (11:00 am PST) to learn about control factors, voluntary compliance, and IRS Form SS-8. Register here: https://www.webcaster4.com/Webcast/Page/925/14635
Employers who wish to utilize independent contractors in their business model may often do so, however, adequate review of the employers' documents and practices is crucial to a successful business plan based on an independent contractor workforce. This week, Uber learned this lesson the hard way.
Entrepreneurs who participate in the "Sharing Economy" may be granted a new worker status as the traditional classifications of employee and independent contractor no longer fit this modern group of workers. Also known as the Gig Economy or the On-Demand Economy, workers in this sector have more independence from the control of their employer than a traditional employee, but they also do not maintain all of the characteristics of independent contractors who do not enjoy the protections of labor laws.
On September 1, 2015, U.S. District Judge, Edward Chen, authorized the certification of a class action in a lawsuit against Uber Technologies, Inc. for worker misclassification of Uber drivers. The drivers claimed they were misclassified as "independent contractors," and rather are properly classified as "employees." Thus, if the court eventually sides with Uber, the ride-share company would be subject to penalties, applicable lost wages or overtime wages, California and federal law regarding unfair competition, worker benefits, and employment taxes.
When I left the California EDD's Legal Office over two years ago, I predicted that the "rideshare" software application companies, Uber and Lyft, would soon come under scrutiny for worker classification issues. My prediction was correct. For the past few months, developments have occurred in two federal wage and hour lawsuits involving these two companies, and centering on issues of worker classification.
Yesterday, the Tax Court issued a full Tax Court Opinion, with concurring and dissenting opinions, finding that an IRS letter was sufficient to confer jurisdiction upon the Tax Court. SECC Corporation v. Commissioner, 142 T.C. No. 12. The controversy arose from an IRS examination of the corporation's Forms 941 (Employer's Quarterly Federal Tax Return) for each of the tax periods from 2005 through 2007. The corporation had classified its workers as both employees and independent contractors in that it reported hourly wages on Forms W-2, but it also paid the workers lease payments for rental of tools and vehicles, reporting the lease payments on Forms 1099-MISC.
California businesses should be cautious about how they classify their workers. Whether a worker ought to be classified as an independent contractor or an employee can be a tricky business that is carefully scrutinized by the IRS during audits. It is explicitly stated in the IRS's Audit Techniques Guide that worker classification is an area auditors are expected to check into.