An article from Reuters last week, notes that Google is being sued by a former contractor, Jacob McPherson, alleging violation of federal labor standards, and that the case filed in New York is seeking class action status. (Along with Google, the plaintiff is suing oDesk and Elance , two web-based companies that enable companies to find and hire freelancers.
Some of the headlines about this dispute read “Google Sued For Cheating Employee Out of Hourly Pay and Overtime” and “Contingent Worker Sues Google, Searches for Justice”. Are these the kind of headlines you’d like to see with your company’s name replacing Google?
By now, everyone should know the IRS rules for distinguishing between employees and independent contractors. But clearly they don’t. So here for your edification and enjoyment, right from the IRS website, are some factors to consider when determining if someone is an employee or a contractor.
- If you have the right to direct and control the worker (tell them when, where and how to do the work); they’re an employee. In the Google case, it has been alleged that freelancers had to follow a Google-approved method for doing their work; were required to do their work at Google’s offices; and also required him to sign employee disclosure, confidentiality and conduct forms.
- Some of the things to consider in this area are: Does the contractor have to make a significant investment in their own tools and equipment? Do they have unreimbursed business expenses related to this work? Are their services available to other employers? Those three things point to an independent contractor relationship. Is there an opportunity for them to make a profit on their work? In the Google case, McPherson alleges that Google provided him with a cell phone, tablet and laptop computer. They took all of his time (paid him for 30 hours a week – but required him to work 45 to get the work done), so he couldn’t work for anyone else.
- Are there written contracts? (And just because there may be a contract that says they are an independent contractor, you are not safe – the IRS looks at the job situation, not just the contract.) Did you provide employee benefits? The IRS assumes that you won’t provide those for contractors. Did you hire them for a specific project or period? An open-ended relationship is more likely to point to an employee. And finally, are the services provided as a key activity of the business? In the Google lawsuit, McPherson says that the email signature he was given identified him as “Books & Magazines Merchandising – Google Play” and gave his address as Google’s New York office. Does that sound like a key activity of Google’s business?
So what do you think – independent contractor or employee? (If it matters – McPherson filed for unemployment, and the New York State Department of Labor agreed he was an employee for unemployment insurance purposes.)