DISCLAIMER: This post gives a general overview of the US gig economy. It is not legal advice, and it could be deemed attorney advertising. If you require information or legal advice applied to your unique situation, please consult an employment attorney in your jurisdiction(s).
As the gig economy continues to evolve, so do the legal and regulatory frameworks governing it. Below are some of the questions we are frequently asked, as well as our typical answers. We believe they offer insights and practical advice to guide both businesses and workers.
What’s the current status of gig workers in the United States?
It’s not easy to determine the current status of “gig workers” in the US because state and local laws may add worker protections or confusion to already complex federal laws, rules, and regulations. Businesses need to be familiar with these laws everywhere they have workers providing services for them, whether:
- Directly
- Remotely
- Virtually
- Indirectly
- Through an app
In New York State, for instance, actions by administrative agencies like the New York State (NYS) Department of Labor (DOL) or the Workers Compensation Board (WCB) can catch businesses off guard. If one of these determines that certain workers classified as independent contractors are actually employees, the client will become an employer subject to audits, penalties, and other liabilities.
It’s increasingly apparent that many gig economy workers are misclassified as independent contractors. For example, a food delivery person using a company’s app to find gigs may be deemed an employee. Arguably, these workers are not independent business owners with multiple contracts to perform their services. Courts and legislators will continue to face the challenge of clarifying these relationships while protecting both employee and business interests.
What tips do you have for gig workers in 2024?
The past four years have brought significant demand for increased disability, Paid Family Leave (PFL), unemployment, and workers compensation (WC) penalties. The availability of Pandemic Unemployment Assistance (PUA) for independent contractors provided the DOL and WCB a lot of data on workers who are often overlooked. However, it also raised new challenges for gig workers who may not have previously considered themselves independent business owners.
For gig workers seeking to maintain their independence, now is the time to formalize your business structure:
- Register as a business. Consult legal and tax professionals to determine the most suitable structure for your business. The higher the risk of injury to you, people you encounter, or their property, the more protection you will want for your personal assets. Likewise, the more assets you have, the more protection you might want.
- Review contracts. Notify the business you work for that you have formed a separate business entity and need to revise the contract to reflect that. Renegotiate any terms you felt compelled to accept because you were still viewing yourself as an employee.
- Diversify clientele. Avoid relying on a single client for your income. (That’s what employees do.) Market your services to multiple businesses and challenge any client that demands a non-competition agreement under NYS and Federal Trade Commission (FTC) restrictions.
Should all gig workers incorporate?
Not necessarily. Incorporation isn’t a one-size-fits-all solution for any business. While it offers benefits like liability protection and potential tax advantages, careful consideration is necessary. We recommend you:
- Seek Professional Guidance. Consult with both an attorney and an accountant to fully grasp the legal and tax implications of incorporation. They can provide coordinated and tailored advice based on your specific circumstances.
- Understand Liabilities. Incorporating doesn’t absolve you of all liabilities. You could still be personally liable for failing to insure workers who are deemed your employees or failing to withhold taxes. Understand the potential risks and consequences before filing any incorporation documents.
- Beware of Double Taxation. One disadvantage of incorporation is the possibility of double taxation if Subchapter S tax treatment isn’t properly elected. Additionally, incorporation entails additional paperwork and administrative responsibilities that may not align with your expectations as a gig worker.
- Clarify Your Status. Gig workers are not “1099 Employees.” You are either an employee or an independent business owner with multiple contracts, or at least the opportunity for them. Ensure you understand your legal classification and its implications for your rights and responsibilities.
- Assess Industry and Risk Factors. Identify the level of risk associated with your industry and your individual circumstances. Higher risk may warrant a separate business entity for liability protection and insurance purposes. Industry norms and tax consequences should also be taken into account.
By consulting professionals and carefully evaluating the implications, you can make informed decisions about whether incorporation aligns with your goals and circumstances. Remember, entrepreneurship requires careful planning and consideration of both risks and opportunities.
What should businesses who use gig workers be doing to protect themselves?
Especially in NYS, businesses utilizing gig workers must be proactive in safeguarding their operations from the shifting regulatory environment. Increased scrutiny from agencies like the DOL and the WCB necessitate diligent compliance efforts.
To mitigate risks and ensure legal compliance, businesses should:
- Review Worker Classifications. Conduct a thorough audit of how gig workers are used and classified within the organization. Ensure that workers are properly classified as either employees or independent contractors based on applicable laws and regulations.
- Update Contracts. Revise contracts with gig workers to reflect their accurate classification and delineate the terms of the working relationship. Clearly outline expectations, responsibilities, and any relevant legal considerations to mitigate potential disputes or liabilities. Also, be prepared to remove any non-competition, or non-compete, clauses.
- Stay Informed. Regularly monitor updates from regulatory agencies and seek guidance from legal professionals to ensure compliance despite the flurry of new regulations.
- Maintain Documentation. Keep copies of all contracts, invoices, payments, and correspondence with gig workers. Collect proof of their independence, such as business cards or online listings to provide their services with multiple businesses.
Most importantly, build mutually beneficial business-to-business relationships with your gig workers. The more you try to control them, the more likely they are to be deemed your employees.
Not sure if you’ve classified a gig worker correctly?
Freelancer Misclassification: The Risks and How to Protect Yourself