A curious development in the business world

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If you hire someone to work for your business on a temporary basis, you give them an IRS Form 1099 at the end of their service with you. This is a record of how much they worked and what they were paid. It is then the responsibility of the temporary worker to pay their own withholding, L&I and taxes. This makes it very cheap for the employer as they do not have to deal with workers compensation, payroll taxes, FICA, FUTA, the whole alphabet salad but this is not intended for full-time workers - the rules are very explicit on this.

There is an interesting lawsuit going on now - a lot of the "gig" businesses like Uber and Lyft are treating all of their employees like independent contractors and giving them 1099's at the end of the year. From Yahoo:

What you missed at the GrubHub trial about 1099 independent contractors
In a windowless, 15th-floor courtroom in downtown San Francisco last week, GrubHub was defending its 1099 independent contractor employment model for its delivery drivers.

There's no verdict yet, and there probably won't be for at least another week. This trial, Lawson vs. GrubHub, is looking to determine whether or not plaintiff Raef Lawson, an ex-GrubHub driver, was misclassified as an independent contractor while delivering food for GrubHub.

Those who work as 1099 contractors can be their own bosses, meaning they can set their own schedules, and decide when, where and how much they want to work. Being a 1099 contractor can also be a solid, lucrative side-hustle because you could theoretically work for several companies at once. As noted in this trial, Lawson also delivered food for other gig economy startups, including Postmates. For employers, bringing on 1099 contractors means they can avoid paying taxes, overtime pay, benefits and workers' compensation.

Although Lawson only seeks a small, estimated sum of $586.56, the result of the trial could potentially affect the employment models of companies like Uber, Lyft, Postmates, Caviar, DoorDash and many others. On day one, I noticed a member of Uber's employment counsel team watching closely, taking notes about the trial. That makes sense, given Uber has found itself as the defendant in similar lawsuits that have ultimately been settled before needing to go to trial.

Lawson's lawyer, Shannon Liss-Riordan, has spent a good chunk of time in this trial focusing on the amount of control she perceived GrubHub to have over Lawson during the time he delivered food for them. She's trying to prove that Lawson's employment met the conditions of the Borello test, which looks at circumstances like whether the work performed is part of the company’s regular business, the skill required, payment method and whether the work is done under supervision of a manager. The purpose of the test is to determine whether a worker is a 1099 contractor or a W-2 employee.

That is going to change a lot of these businesses - rides will not be as cheap as they are now. The Borello test is an interesting one - involved cucumber pickers but applicable to any business hiring temporary workers

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This page contains a single entry by DaveH published on September 11, 2017 5:59 PM.

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