1099 vs. W2 Employee Classification
Employee misclassification is a hot button topic these days. A recent spate of lawsuits has shown that misclassifying employees can have serious and expensive consequences. Uber, Lyft, Handy, HomeJoy, PostMates, Try Caviar and Instacart are just a few of the startups that are facing high-profile litigation for classifying workers as 1099 independent contractors rather than W-2 employees. In fact, just recently, the California Labor Commission ruled that a driver for Uber was an employee and not an independent contractor. The ruling makes the question of proper employee classification all the more salient.
On-demand service startups aren't the only companies getting into hot water for employee misclassification, and the problem of misclassification isn't actually a new one. In the 1990s, Microsoft faced a class action suit brought by workers that had been classified as independent contractors and freelancers. Microsoft paid out $97 million to the workers in a settlement, plus millions in legal fees and a hefty sum to the IRS. FedEx settled with 2,300 of their drivers for $228 million, after the Ninth Circuit ruled that the drivers were employees and FedEx misclassified them as independent contractors.
If employee misclassification isn't a new issue, why all the attention now? Because the way we work is changing. On-demand workers are on the rise, on-demand services are on the rise, and people are finding new ways to leverage their talent online.
As more people become contingent workers, employers must repeatedly ask themselves - Are they 1099 or W-2 workers? At Hire an Esquire, we enable clients to work with our flex attorneys on both a 1099 and W-2 basis, and we make it our business to get employee classification right. The IRS has a 20 factor test for determining 1099 vs. W-2, but classification can still be confusing. That's why we created an infographic with the low-down on employee classification and 1099 vs. W2 employees: