Is the 1099 Economy Sustainable?
by Miki Saxon
$97 million doesn’t sound like much today, but it was a lot 15 years ago when Microsoft lost a lawsuit and was forced to reclassify it’s contractors as employees.
Back then Microsoft called them “permatemps.”
These days startups of all kinds are relying on freelancers to drive their growth, so many that a new term was coined.
They’re called 1099 contractors and the over-all approach is termed the 1099 economy.
“The most famous examples of 1099 companies are on-demand car providers like Uber and Lyft, but there are dozens of others: Homejoy, Handy, Postmates, Spoonrocket, TaskRabbit, DoorDash, Washio.”
The Feds, in the person of the IRS, are very particular when it comes to classifying employees as independent contractors or freelance.
Behavioral control refers to facts that show whether there is a right to direct or control how the worker does the work. A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done – as long as the employer has the right to direct and control the work.
The financial control factors fall into the categories of:
- Significant investment
- Unreimbursed expenses
- Opportunity for profit or loss
- Services available to the market
- Method of payment
I’m a long way from being an expert, but after reading through the IRS information at least some of these companies are going to be in trouble.
Uber sets prices, discounts, doesn’t reimburse expenses and terminates drivers who also work for any of the competition.
That’s a lot of control in the light of the IRS rules.
Obviously, any company that can eliminate payroll, taxes and benefits is going to be super profitable—at least until they have to follow the rules like everybody else.
Flickr image credit: 401kcalculator.org
November 7th, 2014 at 1:16 am
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