In today’s gig economy, platforms are connecting with workers for everything from short-term projects to long-term positions. While this model can be beneficial for both businesses and workers, it also comes with some inherent risks. Here we’ll explore how platforms can mitigate these risks and ensure that contractors are properly classified. By taking these steps, businesses can protect themselves and their workers while still enjoying the benefits of the platform model.
Why platforms should make contractor compliance a top priority
Worker misclassification is a major concern for businesses and workers alike. More and more often, contractors are incorrectly classified as independent contractors, when in the eyes of the government, they should be considered employees. This can lead to financial losses for the business (all the way up to nine figures), since they may be required to pay back wages or other benefits that would otherwise have been due to an employee. It can also leave workers at risk of not getting the protections and benefits they would be entitled to as employees.
For example, Rover agreed to pay $18 million in a worker misclassification settlement. Dog walking, ride share driving, engineering… hiring a worker through a talent marketplace doesn’t make the freelancer an independent contractor. That mistake cost Rover Group $18 million. All gig economy companies should be paying attention.
The current legal landscape around hiring workers as independent contractors
The government is cracking down on worker misclassification. For example, at roughly $230 million allocated, the M-POWER initiative is the largest US government initiative (to date) for enforcing compliance to worker classification and labor laws. It isn’t just the US that’s involved, Argentina, Canada, Germany, South Africa and Spain have also joined the initiative.
In addition to this initiative, in October of 2022, the US Department of Labor announced their proposed rule on worker classification which seeks to return to longstanding interpretation of the economic reality test and whether the work is integral to the employer’s business. The DOL received nearly 50,000 comments on their proposed independent contractor rule.
Even Reuters warns: “Don’t sleep on the risks of misclassification. Misclassifying an employee as an independent contractor can have severe consequences, including on the wage/hour, tax, benefits, and insurance (e.g., workers’ compensation, unemployment, disability) fronts, among others.”
How risks around hiring independent contractors can be properly managed
When platforms work with independent contractors, they must be aware of the potential risks that come with this arrangement. Just because a worker signs an independent contractor agreement or Form 1099-NEC, that doesn’t make them legally an independent contractor. The platform must take the necessary steps to ensure that it is properly classifying its workers and mitigating its risks.
Platforms making proper worker classification a top priority can mitigate risk by ensuring that contractors meet all of the criteria for independent contractor status under applicable laws. The best way to do this in 2023 and beyond is to utilize cutting-edge HR technology.
Utilize technology solutions to help manage risk associated with contractors
Manage the risks of hiring independent contractors (especially as a platform) using AI-driven tools that are engineered with advice from leading labor attorneys & tax consultants. GreenLight’s AI-driven classification engine uses more than 50 data points to determine a worker’s proper classification.
We’re the 21st-century solution for businesses that want to avoid the headache of misclassification. We provide the technology and resources needed to ensure your local and international hiring workflow is legally sound. Our mission is to make sure that workers are always paid promptly, reliably, compliantly, and seamlessly.
Join the other leading brands and talent marketplaces use GreenLight.ai to navigate compliance minefields. If you have questions or concerns about your program, or just want a risk assessment, get in touch with our experts by scheduling a demo here.