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Employee classification: issue arises in a new business model

It’s been awhile since we last discussed the issue of worker classification on this blog. But the question of whether a worker is properly classified as an independent contractor – thus enabling the employer to avoid payroll taxes – remains a lively one in Texas and across the country.

In this post, we will take note of a recently proposed class action by independent contractors against a startup company that offers cleaning and home repair services on an on-demand basis. The case involves contentions that the startup company, called Handy, misclassified its workers.

In recent years, the IRS has been actively seeking to detect misclassification of workers. This has included launching payroll tax audits of many companies.

As we noted in our March 20 post last year, these audits have had an incongruous aspect to them. The IRS has failed to clarify the often-unclear rules for distinguishing employees from independent contractors. Yet the agency is quick to pounce on employers for supposedly violating those rules.

The latest skirmish in the long-running battle over classification involves companies whose business model involves using technology to provide on-demand services. Ride-sharing companies such as Lyft and Uber are good examples of this. The workers who deliver the services are typically classified as independent contractors, not employees.

But are some of the workers who are classified as independent contractors actually employees for purposes of labor law protections or tax compliance?

In the Handy case, one of the factors to be considered in answering that question is control of the work. Historically, under the common law test, having control over the work has been an indicator of an independent contractor status. Yet at Handy, the workers are reportedly required to wear uniforms and follow various guidelines about their behavior in the homes of clients.

It remains to be seen how the proposed lawsuit against Handy will be resolved. But the case clearly serves as a reminder of how the issue of employee classification continues to recur in today’s economy.

Source: Business Insider, “Two Workers Are Suing a Cleaning Startup Called Handy Over Alleged Labor Violations,” Maya Kosoff, Nov. 12, 2014

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