Is your Comcast installer a *Comcast* installer? More on contractors

By coincidence, just after I wrote about independent contractors, Slate had an article about Comcast’s use of individuals paid as contractors for cable installation — or, rather its use of contractors who hire individuals on a subcontractor basis, but who are (mis)treated as employees.  According to the article, contractors, supposedly used only for particularly busy periods, now make up half the installer workforce, and the practices of those contractors are not just somewhat shady but deeply disturbing.

The practices include

• requiring the prospective contractor to start with two weeks of training and two weeks of shadowing;
• requiring contractors to “punch in” in the morning, and work all jobs assigned to them until the system allows them to finish, which could be 12 hours later, and allocating a “lunch period” at the company’s discretion;
• requiring a “noncompete” agreement that prevents them from working for other cable installation contractors —

all of which violate basic components of the employee vs. independent contractor test, as described on the IRS website, and in this Wall Street Journal article (google-based link here), as well as the Slate article itself.  A true independent contractor already has the skills for the job, rather than needing training in the employer’s system; has discretion in hours worked, and in break periods; and is able to work for multiple job sites.

What’s more, because of the “contractor” system, it is the individual, and not the company, that loses out when a customer cancels, or when the job takes longer, sometimes even far longer (an installer tells tales of customers making him wait while they run out to buy a TV), than it should.  And these workers are given visions of large paychecks that never materialize, especially after the need to rent and purchase equipment, pay gas bills, and, come tax time, manage self-employment taxes, and, come tax-time, discover that none of their taxes have been withheld.  And because of these expenses, they’re not able to successfully determine a true take-home pay.

All of which is bad, and the Department of Labor has been engaged in efforts to go after employers who intentionally misclassify employees as independent contractors. And this isn’t a Red or Blue, Republican or Democrat, issue, to the extent that it’s about companies violating the law.

And now I try to untangle this a bit more in the form of a Q&A:

What’s the benefit to employers of using independent contractors rather than employees?

In theory, the wages ought to be the same, if the workers in either scenario have the same degree of leverage.  In a weak labor market, employers will offer lower pay rates either way; in a tight labor market, they’ll offer higher wages and/or job rates.  But why, then, do companies choose the independent contractor route?  I would imagine there are four issues at play:

first, that they anticipate that they can get people to accept contractor rates that are lower than the equivalent hourly rate, due to limitations in workers’ ability to assess how a set of job rates translates into an equivalent wages;

second, they want, in this as in every other aspect of their business, to eliminate risk as much as possible;

third, they want to design the work as piecework, rather than having to worry about managing employees to ensure they work productively, especially when the day-to-day tasks are done independently; and,

fourth, in extreme cases, some employers can manage to turn what would otherwise be a minimum wage job into one that ultimately pays less than minimum wage, and, in any case, employers can ignore laws around overtime requirements.

So imagine that we’re in a situation where employees have enough negotiating power (due to a tight labor market) to demand high job rates.   What’s the harm in this employee-to-contractor change then?

There are several further disadvantages to being a contractor.  No, it’s not a matter of lacking employee benefits; at least for the time being, until the Obamacare mandate kicks in, employers are not required to offer benefits to their employees, and contractors can, in theory, purchase insurance coverage (health insurance, disability benefits, etc.) for themselves.  It’s not really even a matter of the worker having to pay the self-employment tax, since, again, in theory, the job rates ought to be high enough to make up for that.  The bigger issue is that individual workers bear this administrative burden, that is, for tax withholding, in a way that’s inefficient, if you consider the relative ease with which an employer can process withholding for everyone vs. each contractor being required to do this for themselves, and especially the relative difficulty for low-pay, low-skill workers.  And there are some employer obligations which a contractor cannot deal with by purchasing insurance:  worker’s compensation is designed to make the worker whole in a way that no disability benefit would, and unemployment can’t be “insured for” except in the trivial sense that, eventually, one can build up a savings cushion — but one can’t predict when in one’s career the dry spell will hit.

What do I think of the contractor vs. employee test?

If I think about when we had a contractor coming to our house to build an addition, the contractor was clearly not an employee:  he told us when he (or the work crew) would be coming and what was on the schedule for any given day, and we didn’t particularly interfere unless there was a clear conflict (which I think pretty much meant not at all — I was worried that the construction would be a problem for my son, who was two at the time, and his naps, but he loved watching them, and happily fell asleep listening to them hammering), knowing that any request from us would result in delays.

Which means that, based on my reading, I’d differentiate between:

Situations in which the worker has control over work hours, whether by determining when the job is done or by selecting which jobs to take or reject, without facing penalties from the work provider, vs. situations in which the worker is prescribed a fixed schedule by the employer, as well as

Situations in which the worker brings his own skills to the job, and works on tasks which are generally applicable across a variety of jobs, vs. situations in which the worker is trained by the employer to do its specific tasks, and

Situations in which a worker works for multiple work-providers, depending on who has jobs available at a given time, vs. situations in which a worker works for a sole employer.

How often does this happen?

There are a wide range of industries in which the Labor Department is pursuing employers.  This article lists a number of recent actions:

• a $1.075 million consent judgment against a cable company for allegedly misclassifying its cable installers
• a $277,000 assessment against a janitorial service subcontractor and its payroll services company found to be joint employers of low-wage custodians misclassified as independent contractors
• a $1.3 million consent judgment against a text message and Internet information provider for misclassifying its “special agents” who answered text messages from website users, and
• a $395,000 consent judgment against a construction contractor for misclassifying carpenters, electricians, masons, laborers, painters and drywall hangers.

Another article here describes some of these cases.

Under the Bus, which I read a while back, describes abuses in janitorial work, so I pulled up some details here:  Jani-King, and other such businesses, offer what they claim to be a franchising opportunity, but the reality behind the offer is that hopeful entrepreneurs purchase the franchise, and are supposedly “in business for themselves” but then are given a book of business by the company, which they fulfill on their own, and are hence de facto employees, according to an article (from 2014 – there’s not much more recent) at the ABA Journal.

Am I claiming that in each instance in which the Labor Department goes after a company, they’re right and the company is wrong?  

No, I’m not an expert on the law or on these situations.  And from what I understand, they’ve lost some cases, too, because it’s not clear-cut.

What about Uber and TaskRabbit?

Strikes me as a totally different situation.  In the case of Uber, the drivers can accept or decline jobs/rides as they choose, there is no company training per se, and it’s the driver’s own car.  In the case of TaskRabbit, similarly, the worker is not required to accept a task or work a given number of hours, they set their own rates, and they bring their own skills to the job rather than being trained by the company.  On the other hand, the greater the extent to which TaskRabbit punishes workers who aren’t “always available” (besides just the loss of any given opportunity), the more they would seem to move into being an employer, especially since the workers are paid on an hourly basis.

Is there a “fair” way to have employees work on a piecework basis, especially for jobs where they work independently and the employer can’t directly see what they’re up to or “force” them to be faster?

Dunno.  Not an expert.  What do you think?

What’s my point, then?

No, I don’t have a larger agenda.  I said last week that the claims of certain activists that all employers would ultimately fire their employees and hire contractors instead were over-the-top and failed to understand the reality of employment.  But at the same time, it is certainly true that, where abuses occur, the federal government should go after the abusers to ensure that everyone plays by the rules.  So when I read about this and dug into it, it fell into the “something worth sharing” category.

Image:  from https://commons.wikimedia.org/wiki/File%3AElectrician_installing_outdoor_connections_on_multifamily_house.JPG, By Tomwsulcer (Own work) [CC0], via Wikimedia Commons