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<\/a><\/p>\nBy coincidence, just after I wrote\u00a0about independent contractors<\/a>, Slate had an article<\/a> about Comcast\u2019s use of individuals paid as contractors for cable installation \u2014 or, rather its use of contractors who hire individuals on a subcontractor basis, but who are (mis)treated as employees. \u00a0According 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.<\/p>\n The practices include<\/p>\n all of which violate basic components of the employee vs. independent contractor test, as described on the IRS website<\/a>, and in this Wall Street Journal article<\/a> (google-based\u00a0link here<\/a>), as well as the Slate article itself. \u00a0A true independent contractor already has the skills for the job, rather than needing training in the employer\u2019s system; has discretion in hours worked, and in break periods; and is able to work for multiple job sites.<\/p>\n What\u2019s more, because of the \u201ccontractor\u201d 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. \u00a0And 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. \u00a0And because of these expenses, they\u2019re not able to successfully determine a true take-home pay.<\/p>\n 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\u2019t a Red or Blue, Republican or Democrat, issue, to the extent that it\u2019s about companies violating the law.<\/p>\n And now I try to untangle this a bit more in the form of a Q&A:<\/p>\n What\u2019s the benefit to employers of using independent contractors rather than employees?<\/strong><\/p>\n In theory, the wages ought to be the same, if the workers in either scenario have the same degree of leverage. \u00a0In a weak labor market, employers will offer lower pay rates either way; in a tight labor market, they\u2019ll offer higher wages and\/or job rates. \u00a0But why, then, do companies choose the independent contractor route? \u00a0I would imagine there are four issues at play:<\/p>\n 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\u2019 ability to assess how a set of job rates translates into an equivalent wages;<\/p>\n second, they want, in this as in every other aspect of their business, to eliminate risk as much as possible;<\/p>\n 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,<\/p>\n 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.<\/p>\n So imagine that we\u2019re in a situation where employees have enough negotiating power (due to a tight labor market) to demand high job rates. \u00a0\u00a0What\u2019s the harm in this employee-to-contractor change then?<\/strong><\/p>\n There are several further\u00a0disadvantages to being a contractor. \u00a0No, it\u2019s 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. \u00a0It\u2019s 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. \u00a0The bigger issue is that individual workers bear\u00a0this administrative burden, that is, for tax withholding, in a way that\u2019s 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. \u00a0And there are some employer obligations which a contractor cannot deal with by purchasing insurance: \u00a0worker\u2019s compensation is designed to make the worker whole in a way that no disability benefit would, and unemployment can\u2019t be \u201cinsured for\u201d except in the trivial sense that, eventually, one can build up a savings cushion \u2014 but one can\u2019t predict when in one\u2019s career the dry spell will hit.<\/p>\n What do I think of the contractor vs. employee test?<\/strong><\/p>\n If I think about when we had a contractor coming to our house to build an addition, the contractor was clearly not an employee: \u00a0he told us when he (or the work crew) would be coming and what was on the schedule for any given day, and we didn\u2019t particularly interfere unless there was a clear conflict (which I think pretty much meant not at all \u2014 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.<\/p>\n Which means that, based on my reading, I\u2019d differentiate between:<\/p>\n 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<\/p>\n 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<\/p>\n 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.<\/p>\n How often does this happen?<\/strong><\/p>\n There are a wide range of industries in which the Labor Department is pursuing employers. \u00a0This article<\/a> lists a number of recent actions:<\/p>\n Another article here<\/a> describes some of these cases.<\/p>\n Under the Bus<\/em>, which I read a while back<\/a>, describes abuses in\u00a0janitorial work, so I pulled up some details here: \u00a0Jani-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 \u201cin business for themselves\u201d 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 \u2013 there\u2019s not much more recent) at the ABA Journal<\/a>.<\/p>\n Am I claiming that in each instance in which the Labor Department goes after a company, they\u2019re right and the company is wrong? \u00a0<\/strong><\/p>\n No, I\u2019m not an expert on the law or on these situations. \u00a0And from what I understand, they\u2019ve lost some cases, too, because it\u2019s not clear-cut.<\/p>\n\n
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