Classifying Workers as 1099 Independent Contractors versus Company
BUSINESS/ETHICAL IMPLICATIONS 10
ClassifyingWorkers as 1099 Independent Contractors versus Company Employees
Theaim of this essay is to assess the ethical implications ofclassifying workers as 1099 contractors, bearing in mind well thatthey have limited benefits and control from an employer compared toemployees. Case studies of lawsuits against FedEx and Uber bymisclassified workers are examined to reveal the oppression workershave to endure such as lack of reimbursement for incurred expensesassociated with the companies’ operations. The major stakeholdersinvolved are the workers and the employers. Alternatives inpreventing future classification focus on sensitizing workers ontheir labor rights, and the company using economic tests to assessemployees’ roles periodically. The results show that classifyingworkers as independent contractors reveal a self-centered approach byemployers that deprives workers of their well-being, lack ofaccountability and compliance with tax administration law. The paperestablishes that employers that misclassify workers inflate theeconomy by passing the burden of avoided insurance and taxation feesto other companies. The essay concludes that businesses shouldprioritize the well-being of its workers, abide by the law, anduphold business integrity and competence. It also recommends thatemployers should cooperate with professional lawyers, taxadministrators, and workers to counter the controversy between thestatus of an independent contractor and that of an employee.
Ethical Issues 4
Employer Liability 4
The Moral Minimum 5
Standardized Procedures for Worker’s Evaluation 6
Workers’ Sensitization 7
Alternative Work Arrangements 7
Impact of the Decisions 7
Duties, Rights, Principles 8
Personal Integrity and Character 8
ClassifyingWorkers as 1099 Independent Contractors versus Company Employees
Workerclassification is an essential element that defines theemployee-employer relationship. Independent contractors are noteligible for many benefits entitled to an employee such as healthinsurance, and retirement benefits. The profit margin increases whileincome taxes liable to an organization reduce due to reducedexpenses. The situation has legal and ethical implications to acompany. This essay focuses on the ethical issues emergent fromclassifying workers as 1099 independent contractors. The analysisshows that one moral aspect of the misclassification is a negativeimpact on the business integrity on taking accountability inpromoting the employees’ work and personal welfare.
TheInternal Revenue Service (IRS) uses the criteria of assessing themagnitude of control of a business over an employee to determine if aworker is an employee or an independent contractor. A misclassifiedemployee is identifiable from higher degree of control by theemployer such as having to work within prescribed hours and theemployer being the party that influences the wage rate. Anindependent contractor is exposed to business risks compared toemployees because they cannot have a membership to labor unions. Itmakes them susceptible to employer’s threats of termination or paycut. If an independent worker succumbs to injuries on duty, theemployer is not responsible for costs associated with treatment andother medical expenses.
Moralminimum is the lowest standard acceptable for a business to adopt theethical behavior and is mostly associated with obliging to laws(Miller, 2013).A company with independent contractors by name, but has significantcontrol over their operations defies the law. As such, it falls shortof its requirement by evading taxes from the contracted employeessince they file their tax returns independently. Also, if thebusiness determines the wages of the contractors, there is alikelihood that it falls below the minimum wage set by the law. Itcauses a huge disparity between their salaries and those received byunionized employees. The significant difference in compensation isethically questionable in conjunction with non-compliance to theminimum wage law.
Theworkers are the main subjects that reckon with their classificationas either independent contractors or employees. Most federal statutesapply in protecting employees’ interests, making it compulsory forindividuals seeking immunity to establish their employment status.Some of the legislature’s provisions that safeguard employees arethe Family and Medical Leave Act, Retirement Income Security Act, andthe Internal Revenue Code. Employee misclassification has been on therise, triggering workers to seek legal assistance in confirming theiremployment status. For instance, FedEx had to part with $228 millionto pay its drivers for misclassifying them as independent contractorssince it controlled their operations(DelPo, Guerin, & Barreiro, 2016).The claims the drivers presented were unpaid overtime and delayedreimbursements, just because FedEx employed them as independentcontractors instead of employees.
Workers’classification mandates the company to view independent contractorsas autonomous people, as long as they are executing the dutiescontracted for within the set timeline, while the employer has directcontrol of an employee. Subsequently, the employee status might besubject to confirmation by the IRS, the tax department, or theworkers union. Hiring independent contractors is a scheme used byemployers to avoid long-term commitments with the contractors, buteven with the benefits, companies found guilty of misclassifyingworkers face legal charges. Businesses can pay all the pending duesto the employees and backdated taxes to the federal. Uber driversfiled a lawsuit against Uber that hires them as independentcontractors to recognize them as employees since they incur mileagecosts for the company’s vehicles without compensation(DelPo, Guerin, & Barreiro, 2016).They did not also have workers’ protection of Social Security andMedicare.
AlternativesStandardizedProcedures for Worker’s Evaluation
Anorganization should revisit the workers’ roles routinely toestablish if there are any changes in the duties assigned to anemployee and prevent workers misclassification. A company can use theDepartment of Labor’s economic tests of identifying the employee’sstatus(Lani, 2016).These are business ownership, employer’s control, skills required,and the nature of an employer-employee relationship. Another way isseeking assistance from a tax professional to assist in pointing outany misclassification.
Theissue of classifying employees should not be inclined to the employeronly, but also the workers have a share in it since they are the oneswho experience its effects. It is important to create awareness amongworkers of their labor rights to ensure their proper classification.For instance, the DOL’s Wage and Hour Division revised the minimalwage and working hours due to increased complaints of workers’misclassification(Lani, 2016).Employers were required to sign the poster to identify misclassifiedworkers, and it educated them on their rights.
Itcan entail working on a part-time basis or telecommuting, where theworker gets the liberty to work from home and operate on a flexibleschedule. The arrangement is accommodated in the Family and MedicalLeave Act’s provision and the Americans with Disabilities Act. Theother option is hiring temporary employees for short-term needs. Thecompany puts them on the payroll, and the applicable terms arecontractual.
Impactof the DecisionsConsequences
Usually,the federal and state laws limit the control an employer has on anemployee, contrary to independent contractors. Employers are alsoprohibited from hiring independent contractors instead of themassuming the role of employees. Evaluating workers is likely toreduce independent contractors, as companies’ transition to hiringemployees due to fear of lawsuits. Similarly, sensitizing employeesof their labor rights leads to an increase in complaints ofmisclassification against employers, while employers might avoidlegal implications of misclassifying workers as independentcontractors and exploit workers through short-term contractualworking arrangements.
Companieshave a responsibility to cater for a proportion of the FederalInsurance Contributions Act taxes, disability insurance, andunemployment taxes for their employees. Similarly, an employer has anobligation of ascertaining that the agreement made with anindependent contractor minimizes the employer’s control over thebusiness. An employer has a right to discharge an employee, and anemployee can terminate a working relationship with an employerwithout incurring liability(Recor, 2012).The rights stipulated by the federal and state labor laws apply toall employees. Existing principles consistent with the legislationguide on worker’s classification regarding the control an employerassumes over an employee. Immeasurability of work hours characterizesan independent contractor because an employer has no control todictate the working hours required. Finally, efficient contracts forindependent workers are necessary to prevent misclassification.
PersonalIntegrity and Character
Whenemployers misclassify workers, they deprive them of employeeprotection granted by the law and other benefits by the employer. Thebusiness violates labor and tax laws, which taint its business imageand integrity. Intended misclassification is based on the grounds ofaccumulating more profits, an indication of employers beingself-centered and giving minimal consideration to workers. However,if employers embrace the alternatives illustrated above, a productiveassociation develops between the employers and the workers.
Theultimate way out to legal and ethical issues that arise fromclassifying workers are independent contractors compared to employeesis the involvement of all stakeholders in employment contracts.However, the party to take the initiative becomes the employer. Itwould be prudent for the company to involve the legal team and thedepartment of labor anytime a new worker is hired. It would make iteasier to identify and rectify the status of a misclassifiedemployee.
Taxadministrators lose a significant proportion of revenue from workermisclassification, which distorts the state’s budget. The IRSestablished that individuals classified as independent contractorswould contribute $8.71 billion to the Federal government in years2012 to 2021(Leberstein & Ruckelshaus, 2016).Finally, the workers, who endure the most of the misclassification,are deprived economically because their net earnings trip to a third.For instance, an Uber driver estimated lost earnings of $10,000yearly due to failed reimbursement(Leberstein & Ruckelshaus, 2016).As such, eliminating uncertain worker classification benefits theworkers, tax administrators, and service recipients, while upholdingschemes of worker protection.
Itis outright that worker classification is a crucial subject thatdemands accuracy and examination of the nature of theemployer-employee relationship. It becomes complicated when workersare given the title of an independent contractor while in reality,they perform employees’ roles. The contentious issue has led toseveral legal issues as seen above, and a heavy burden befalls thecompany regarding its ethical competence. As much as the employer maywant to increase the profit margin, it is important to comply withlabor laws, consider the rights of workers, and business integrity.Therefore, employers should always strive to work in collaborationwith litigation officers, tax administrators, and employees todetermine the correct classification of workers.
DelPo,A., Guerin, L., & Barreiro, S. (2016). TheManager`s Legal Handbook.Nolo. Retrieved April 2, 2017
Lani,R. (2016, December 7). AreYou Hiring an Employee or Independent Contractor, and Why It Matters.University of Maryland Francis King Carey School of Law, Associationof Corporate Counsel. QuickCounsel. Retrieved April 3, 2017, from AreYou Hiring an Employee or Independent Contractor, and Why It Matters:http://www.acc.com/legalresources/quickcounsel/hiring-an-employee-or-independent-contractor.cfm?makepdf=1
Leberstein,S., & Ruckelshaus, C. (2016). IndependentContractor vs. Employee: Why independent contractor misclassificationmatters and what we can do to stop it.NELP. Retrieved April 4, 2017, fromhttp://www.nelp.org/content/uploads/Policy-Brief-Independent-Contractor-vs-Employee.pdf
Miller,R. L. (2013). CengageAdvantage Books: Business Law Today, The Essentials: Text andSummarized Cases.Cengage Learning.
Recor,M. (2012, Dec). Classifying Independent Contractors and Employees.CPAJournal,48-53. Retrieved April 3, 2017, fromhttp://web.b.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=8e5fdf7a-d8c4-47af-ae5e-dd52ebacd91b%40sessionmgr103&vid=0&hid=107
No related posts.