Maintaining Autonomy: The Tricky Business of Classifying Independent Workers
Workspan Daily
September 06, 2022
Key Takeaways

  • Not as simple as it seems. The decisions as to how to classify workers and the companies that provide them with opportunities to work differs in each state and thus, suggesting rules which will apply federally can be risky.  
  • Critical criteria. The most important issue in supervising workers identified as gig workers, freelancers or independent contractors is determining whether they satisfy the criteria to actually be considered independent contractors. 
  • State-to-state distinctions. Classification evaluations for independent contractors differ from state to state, making it difficult to arrive at blanket conclusions which will be applicable federally. 
  • Remaining independent. To be considered an independent contractor, a worker must show they are free from control by those providing working opportunities.  

Determining how to classify independent contractors versus employees might seem straightforward on the surface. But what appears to be a simple issue is quite complicated.   

The decisions as to how to classify workers and the companies that provide them with opportunities to work differs in each state and thus, suggesting rules which will apply federally is dangerous, as each state enforces the classification issue in theoretically different ways.  

The most important issue in supervising workers we identify as gig workers, freelancers or independent contractors is determining whether they satisfy the criteria to actually be considered independent contractors. These evaluations differ from state to state so it is difficult to arrive at blanket conclusions which will be applicable federally.  

The evaluation process and case law on this subject is complicated and often overlapping and sometimes inconsistent. This is an issue that impacts workers and those who provide people with working opportunities. The issue impacts workers who either want to maintain the status of independent contractors or who want to be considered to be in an employee/employer relationship, depending on their actual working environment. Most workers classified as independent contractors appreciate this status, prefer this status from a tax paying perspective and want the freedom to decide when and how they will work.  

On the other hand, some workers are having their remunerations impacted by companies charging them for expenses of advertising etc. based on their status as independent contractors, when in fact, these expenses are more properly absorbed by the employer or company overseeing the services being provided.  

In most cases, the entity providing working opportunities likes that its workers are construed as independent contractors because it also reduces the taxes the employer entity will otherwise have to pay. Not being in an employer-employee relationship reduces taxes both for the worker and the employing entity.  

For example, New Jersey has currently adopted what is commonly known as the “ABC” test to evaluate working relationships and determine whether workers and those providing them with work are classified properly.  

Effectively, to be considered an independent contractor 1) a worker must show they are free from control by those providing working opportunities. 2) They must also demonstrate that the service they are providing is either outside the usual course of business for which the service is performed or the service is performed outside of all the places of business of the enterprise for which such service is performed. Finally, 3) the individual being evaluated must be engaged in an independently established trade, occupation, profession or business. 

The statute in New Jersey, N.J.S.A. 43:21-19 (i)(6)(A)(B)(C) starts with the proposition that unless all three prongs of the test are satisfied, the relationship will be considered one of employee and employer. The statute is conjunctive, making it difficult to fulfill all three aspects of the test.  

Most workers classified as independent contractors like this designation. They enjoy the independence, want to make their own decisions about where and when they work and have no concerns about not being eligible for unemployment compensation or disability benefits, because many of the industries they work in have more available work than can be satisfied. As such, there will rarely if ever be circumstances where they would qualify for such benefits.  

Alternatively, workers who feel they are actually employees disagree strongly with policies which classify them as independent contractors and allow employers to deduct expenses from their pay which they believe are properly expenses to be absorbed by what they consider to be their employer.  

In certain states, what is couched as an attempt to protect workers and their rights is simply a thinly veiled attempt to increase revenue in cash strapped states without much regard for the rights of the workers. Cracking down on employers by those in elected positions with heavy fines and the prospect of closing one’s business is a draconian way to address these issues which can impact businesses and put them out of business forever which seems counterintuitive in an effort to protect workers. Before businesses are sanctioned, there needs to be a fair and equitable way to evaluate the classification issues in a way which is fair to workers, those providing work opportunities and the governments which provide benefits to help workers. 

Finally, the federal government entered this issue during the pandemic and complicated the evaluation process. Part of the American Rescue Plan initiated by the federal government through the Federal Pandemic Unemployment Compensation Act (FPUC) allowed gig workers to collect unemployment compensation, first in the amount of an additional $600 per week beyond what a state would provide. 

This amount was later reduced to $300 per week and this federal assistance program was terminated on Sept. 6, 2021. Thus, the best way to control this issue is to make sure those being treated as independent contractors fulfill the criteria to avoid misclassification sanctions which impact both workers and those that offer opportunities to work.  

Editor’s Note: Additional Content 
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