Properly classifying a worker as an employee or an independent contractor is an important business decision. Employers must pay Social Security, Medicare and unemployment taxes for employees, while independent contractors are not subject to the same tax requirements.
The IRS actively investigates worker classification, and the U.S. Supreme Court has issued guidance on how to properly determine if a worker is an employee or an independent contractor.
In California, the transportation sharing company Uber Technologies, along with Rasier-CA LLC, the Uber subsidiary that licenses mobile application technology, received an adverse determination by the California Labor Commission that their drivers are not independent contractors. Uber treats its employees as contractors and not employees.
Barbara Berwick drove for Uber for two months in 2014. She claimed that she was owed money for miles, tolls, additional wages, interest and penalties. Uber argued that it was not an employer and that Ms. Berwick was an independent contractor. The California hearing officer did not agree, finding that Uber was involved in all aspects of the transportation operation. Uber vets prospective drivers, provides background and motor vehicle checks, and collects Social Security numbers. Uber also controls the tools the drivers use, and discourage drivers from accepting tips. These business postures indicate that the drivers are employees and not just independent contractors.
Uber appealed the California Hearing Officer’s determination.
All employers should think carefully before classifying a worker as an independent contractor rather than an employee.
