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How to Avoid a Compliance Nightmare with the Gig Workforce

Posted on May 10, 2017
Audrey WielandWritten by Audrey Wieland | Email author

Gig what?

The gig economy has a few monikers: shared economy, human cloud, contingent digital workforce, on-demand workforce. All these names apply to a growing type of work relationship characterized by its nature. The human cloud amounts to an abundance of work that is short term in nature and is often highly specialized and/or assignment based.  It’s chiefly defined by both work and workers that are temporary and need-based…think Uber meets the white-collar workforce in many regards. It offers significant benefits in that employers can fill short-term gaps, and find workers qualified for special projects.

The Congressional Research Service (CRS) describes the gig economy as a collection of markets that match providers to consumers on a gig (job) basis in support of on-demand commerce. Gig workers enter into formal agreements with companies (e.g., Uber, TaskRabbit) to provide services.

For the worker, or gig worker, the locus of control has shifted, commitment doesn’t equal loss of control or life in a cube….

 What’s a gig worker?

A gig traditionally is something we associate with the music world. Talented, independent souls, that are here today, and gone tomorrow.  Today, that gig comes in the shape of non-traditional work arrangements such as freelancer’s, 1099’s, and in some cases, people who choose to work intermittently to fund hobbies, travel or facilitate spending more time with family.

A liberated workforce doesn’t free employers

Employers have major compliance responsibilities. This emerging ‘on demand,’ economy presents some complex compliance topics for employers.  The nature of the gig may be more fluid, however, compliance is not. Employers must engage in a detailed and knowledgeable analysis of fixed rules and regulations regarding how to classify these workers.

Employment Classification

A non-traditional workforce leaves employers scratching their heads trying to figure out if an employee is part-time, temporary or an independent contractor. The federal government recognizes it has some catching up to do.  The DOL admits “…the on-demand economy raises important questions about how to continue upholding time-honored labor standards and how to promote economic security for American workers in a changing labor market.”

It’s evident that employers will need to stay up to speed as this emerging economy develops and impacts compliance strategy. To ensure they have their finger on the pulse of not only change but compliance as well.

Does your staff understand their responsibility?

Deciphering Internal Revenue Service and Dept. of Labor guidelines can be a challenge. Are you confident that your organization understands compliance directives and can spot the red flags that may hint at a problem?  Critical to ensuring compliance is the proper analysis. Businesses must be sure that their staff, tasked with applying the myriad of regulations and rules, understand their responsibilities. It’s also critical that the right questions are being asked and the relevant job factors are being taken into consideration.

Are all your employees classified the same way?

Everyone is 1099? Are you sure about that? It may be worth your while to do a comprehensive assessment to determine if employees or 1099’s are being categorized correctly. It’s possible that over time, someone that was a proper 1099 is now a part-time employee.

Is the gig never-ending?

Are you regularly ‘extending,’ the original contract? If so you may be heading into some very gray territory when it comes to compliance.  The individual that was once a freelancer is now an employee.

The 1099 has a boss.

Generally, a freelance, contract employee is not on your schedule and directs their own work, using their own methods, workflows etc.… If someone is doing freelance work, but it’s onsite, regularly scheduled, they are using your business’s supplies, software etc., you may be out of compliance.

Stay on the good side of the IRS: classify workers properly

Why it matters?

The Internal Revenue Service (IRS) and Dept. of Labor (DOL) have guidelines around how to differentiate in order to properly classify. Failure to file accurately and timely can have more expensive consequences since the updates to the Trade Preferences Extension Act.

The 2015 Trade Act influences domestic and international business practices. Among the regulations and requirements outlined in the revenue-raising provisions…are increased penalties for filing incorrect W2’s or providing incorrect payee statements. As of January 1, 2016, employers running afoul of compliance mandates risk a whopping combined maximum penalty of $6M if errors are generated from both payee statements and returns.

Benefit Compliance

Negotiating the benefit landscape is no less tricky than determining classification. It’s imperative that employers monitor all components of their workforce to determine and offer eligible employees access to healthcare, retirement, disability and unemployment benefits.

Microsoft serves as a cautionary tale in treading very carefully around employee classification. In Vizcaino v. Microsoft the courts determined that seven part-time, freelance employees were misclassified and therefore eligible for a number of benefit programs typically reserved for traditional full-time employees.

Thing are changing…fast

The economic landscape is shifting.  In a gig economy, according to Techtarget.com, “businesses save resources in terms of benefits, office space and training. They also have the ability to contract with experts for specific projects who might be too high-priced to maintain on staff”.  However, the flip side of these benefits is the need for increased attention to detail. Additionally, how workers are classified over time must also be monitored. How the gig workers’ time and work are managed in terms of 1099 vs employee status may not be a one-time call.  Your staff must be ready to monitor and adjust while maintaining compliance!

Businesses must have staff trained and prepared to focus and understand what you may consider the minutia.

Why? Because failing to focus on best practices can cost millions.

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