Is the Worker an Employee or IC?--Why Companies Care!
Recent cases and legislation may provide the death knell—or at least cause major changes-- with regard to companies that have provided delivery of people or products by using what has been labeled as Independent Contractors (IC). The decision on this issue involves billions in tax liability and other benefits.
This question is important for companies such as Amazon, Dynamex, Uber, Lyft, etc., as this concern involves billions of dollars of potential liability.
There has been a good deal of legal activity taking place in many states, such as California and New Jersey, addressing the issue as to whether a worker is an Independent Contractor (IC) or an Employee (EE). The recent, continuing concern arose from a dispute as to whether drivers who make deliveries are to be considered as EEs of the company or as ICs of the company for whom they deliver products.
This is important, and relevant to the discussion at hand, since most states and Federal law impose more taxes on the employer if the given worker is an EE of the company in question as opposed to being an IC for the company. New court cases and legislation have seemingly broadened the definition of an EE, thus, moving, in some instances, a worker from the position of an IC to one of being an EE. If the worker is an EE, such classification will generate more tax and other liabilities for the company and more employment obligations on the company than would otherwise exist in most cases when a worker is treated as an IC.
A recent approach to making this determination between the IC or EE, and one very relevant to the discussion at hand in this Tip, was stated in a decision out of the California Supreme Court. The decision was in the Dynamex Operations West, Inc. Case in which the Court held that the drivers for Dynamex were employees. This conclusion has been followed in other jurisdictions, including one recent position in France, involving Uber.
If companies such as Dynamex and Uber, among others, do not succeed in changing the position of courts and legislators on this issue, this EE treatment will create huge financial burdens on such delivery/transportation companies. (Real estate agents have an Internal Revenue Code Section, viz. 3508, which helps support their position that the agent is an IC and not an EE.)
By
Dr. Mark Lee Levine,
Professor, University of Denver
For more on this issue, see the article by Levine, Mark Lee and Segev, Libbi Levine, “Is the Worker an Employee or IC? Huge Tax Issue—and More,” University of Denver, January 2020.
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