How the On Demand Workforce is Increasing Compliance Issues
In simpler times, “odd jobs” or “handyman” labor was acquired via referrals from a trusted friend or family member and the laborer was paid in cash at the end of the job. If you needed a job done in a field where none of your friends or family had any connection to a provider, you were on your own. This void has been filled quite successfully by technology companies offering apps to connect customers with vast armies of freelance housekeepers/domestic help, car services, landscapers, tech support pros and more. But with the technology comes visibility and reporting. No more “cash under the table.”
With the increased visibility comes increased scrutiny by the IRS and other agencies struggling to evolve along with the rapidly changing nature of on demand workforce acquisition and management. As these agencies improve their enforcement of compliance with applicable tax and insurance laws, more and more workers and employers are being audited and penalized. We’ve blogged at length about the “gig economy” and the legal/compliance ramifications for those using this class of worker. Ambiguous worker classification, diverse interpretations of contracts and questionable tax liability are chief among the concerns. Time magazine recently ran a great piece on the subject here.
The gig economy has radically altered how a large subset of American workers is compensated. It has blurred the lines between what were once clearly defined classifications. This increased scrutiny leads to a need to tax for services that used to be un-recorded by any authoritative bodies (IRS, DOL, state and local governments). While the negative effects of this ambiguity are often characterized as a problem for hiring organizations who are the target of audits, there is also a downside to the gig worker as well. There is, after all, a benefit to the worker when he/she is classified correctly. Proper classification of the on demand worker affords protections such as FLSA, OSHA, workers compensation and others.
Those leveraging on demand labor must be joined by the workers themselves in pursuit of education on the new rules that are emerging to govern the new paradigm. For example, the “behavioral” attributes of an on demand workforce make them more like Independent Contractors than some others. Yet many on demand workers do not have the proper credentials to be viewed as an Independent Contractor according to the IRS and DOL. Some of these workers are Sole Proprietors, and because of this status, the lines are even more blurred. Working for themselves and reporting taxes using their Social Security Numbers leads to the question of whether these workers are to be classified as small businesses or individuals.
The proliferation of new strains of on demand technology, each supporting a different type of work schedule/regiment, work environment, management structure etc. means the ambiguity will continue to grow. Just as governing bodies address the latest new on demand service, a new and innovative one emerges. Most times, the Statement of Work for these engagements is very simple – Task, Rate, Completion Date and Compensation. The unstated variables such as severance language, insurance protection, damages etc., leave both the worker and client open to significant liability and grief.
The solution to this challenge is still being formulated. The best any hiring organization can do when opting to leverage on-demand labor, is to stay as up-to-date as possible with emerging case law and adjust their own policies in accordance with the laws/regulations as they are issued. They can also engage the assistance of providers like nextSource who eat, sleep and breathe this subject matter and are often on top of the latest developments.