The Uberization of Labor – Benefits and Risks

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The relationship between employers and employees is changing very quickly.  It used to be that we went to work for a company, stayed with them for life, got the gold watch and a nice pension and retired to the coast.  But clearly it doesn’t work that way anymore.  The average number of years that wage and salary workers had been with their current employer is now 4.6 years in January 2014 according to BLS.

Coming out of the last recession, we are seeing an increasing amount of workers who are using “Gig” jobs to supplement or in some cases replace the income that they get from a full time job.  In addition, there is a huge amount of Baby Boomers retiring from the marketplace and a large swell of millennials who are changing what they want work to look like.

The new generation is changing the dynamic of the workforce, demanding flexible working arrangements.  They are comfortable with ‘Gig’ work.  Platforms are facilitating matchmaking services.  Millenials will be 50% of the workforce by 2020 and 75% by 2030.

In the recent Uber class action lawsuit, the basic question under debate, is whether Uber drivers are being treated unfairly by Uber and whether they should be classified as contractors as they are today, or as employees.  The test is not the same in all countries and the test we use in the US does not apply to the rest of the world.

uber unfair

Consequences of getting it wrong can be costly whether inside or outside the US.  

  • Back tax withholdings
  • Back social security contributions
  • Back state unemployment compensation and workers’ compensation insurance premiums
  • Back overtime (for nonexempt positions)
  • Back benefits (under the terms of certain employee benefit plans)
  • Interest and penalties Outside the United States, though a misclassified nominal independent contractor can trigger liability on these six grounds as well as on four other (potentially more expensive) grounds that tend not to be issues stateside
  • Back vacation and back holidays under legal mandates
  • Back mandatory benefits (for example, profit sharing, thirteenth-month pay, mandatory bonus, payments to state housing funds)
  • Severance pay, notice pay and liability for unfair employment dismissal
    “Misclassification fines”(for example, misclassification fines in Argentina and Peru, and fines under Spain’s Law on Violations and Sanctions on Social Matters, which imposes fines plus a percentage of unpaid withholdings and an extra penalty for “very severe” violations) These extra four grounds get expensive.

Tax and social security agencies around the world increasingly target contractor classification in their audits, using modern technologies to make these audits more frequent and effective. Countless labor court, tax and government agency judgments in contractor misclassification claims from across first-world and third-world countries alike impose awards in hundreds of thousands, sometimes millions of dollars.

The above is one of the five topics covered in the recent Bloomberg BNA webinar co-hosted by John Smith and Terri Gallagher on Thursday July 19, 2016 at 11am – 12:30pm ET.

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Written by Kathryn Hopkins.

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