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The gig economy represents a potential boon for both workers and employers. As interest in contract work rises, so do questions about employment and employer sponsored benefits. A recent audit in Washington State revealed that one popular delivery startup may owe the state more than two years’ worth of workers’ compensation premiums. Employers must follow state laws surrounding worker classification to avoid fines and penalties arising from workers’ compensation and other avoidable expenses.
Washington’s Department of Labor & Industries (L&I) conducted the Postmates audit after company couriers suffered on-the-job injuries and filed claims for workers’ compensation benefits. The audit revealed Postmates classified its thousands of couriers as independent contractors and did not carry insurance on them.
According to the audit findings, the company failed to pay nearly $320,000 in premiums from 2013 to 2015. The audit also discovered instances of poor record keeping during the same audit period.
Postmates offers an Uber-like service for goods. Couriers sign up for the program and login to find available delivery gigs. They travel to stores and restaurants to pick up orders and deliver them. The customer and the courier manage the transaction through the Postmates application.
L&I alleges Postmates inaccurately classified its couriers under Washington workers’ compensation laws. Postmates has attempted to refute the findings. The company considers itself a marketplace or facilitator for freelance contractors rather than an employer. Since couriers directly benefit customers and manage their own time and transportation, Postmates asserts, they act as contractors and not employees. If L&I denies Postmates’ request for reconsideration, the company can file an appeal and then take the matter to court to obtain a final determination.
The State of Washington, much like California, enforces strict classification standards for employees. Any business that fails to meet the standards for hiring independent contractors must treat workers as employees and offer workers’ compensation coverage. Standards in Washington include a personal labor test (RCW 51.08.180) the general counsel of Postmates believes L&I ignored during the audit.
While the Washington State government challenges Postmates, similar debates have and will arise surrounding employment classification. Some businesses, including PR firm LP&G in 2009, find ways to lay off and rehire former employees as independent contractors. In the arrangement, the business can cut overhead costs. Contractors may perform the same basic function and gain a small amount of freedom but lose access to important benefits and any sense of job security.
Many states will fight the same employee classification battles as Washington’s case against Postmates. In practice, where do businesses draw the line between employee and contractor? Are the current state standards enough to protect workers? What happens to medical expenses and personal insurance if contractors must pay for their on-the-job injuries out-of-pocket? The answers to these questions will shape the economy for years to come.
Workers themselves are the ones who suffer the most as the result of misclassification. Mislabeled employees may miss out on much needed support and compensation after an on-the-job accident, and gig industry contractors must always consider the risk vs. reward in accepting contract work.
In today’s world, companies and workers may benefit from understanding more about the differences between an employee and an independent contractor. The definition changes from state to state. Knowing your rights and responsibilities will help you make informed decisions about your working arrangements.
Under current laws, independent contractors in California maintain the right to manage every aspect of the work performed. Additionally, the state enforces IRS factors including the presence of profit or loss, equipment/facilities investments, the presence of multiple end-clients and general public availability, whether the contracting business delivers specific instructions about the work, and more. Employers who purposefully or negligently misclassify employees as independent contractors in California may face financial penalties at both the state and federal level.