There is troubled road ahead for businesses that rely heavily on outsourced gig work. In April, the U.S. Labor Secretary took a strong stance in support of employee classification of gig workers.
The perks of employment are many—including a reliable paycheck and benefits of varying types. A steady workforce is essential to managers and business owners. Part of the business cost of employees on the payroll is payment of employment taxes and workers’ compensation insurance
In the 1990’s, a new type of worker solidified from the freelance jobs of earlier decades. Contract work and consultants gave rise to the workforce sector we now know as gig work. The US Bureau of Labor Statistics considers gig work as a “single project or task for which a worker is hired, often through a digital marketplace, to work on demand. Some gigs are a type of short-term job, and some workers pursue gigs as a self-employment option…”
In 2020, approximately 43 percent of the U.S. workforce is estimated to be composed of gig workers, and the number continues to rise.
Gig work gives individuals opportunity to choose their work and working hours. Gig job opportunities continue to grow across industry as employers seek to outsource part or all of their workforce. On the downside, gig work can be inconsistent, lacks benefits, requires personal discipline, and may pay less than regular employment.
Recently, Reuters reports that U.S. Labor Secretary Marty Walsh articulated the view of the Biden Administration on gig work. “We are looking at it but in a lot of cases gig workers should be classified as employees... in some cases, they are treated respectfully and, in some cases, they are not and I think it has to be consistent across the board.”
For business owners, classification of employees as gig workers often leads to employment tax disputes or worse—allegations of tax fraud. When an employee can be outsourced, the company is no longer responsible for benefits, workers’ comp, or payroll taxes.
Speaking to the loss of benefits to workers, Secretary Walsh added, “These companies are making profits and revenue and I'm not (going to) begrudge anyone for that because that's what we are about in America. But we also want to make sure that success trickles down to the worker.” It also means the IRS may be taking a closer look at how workers are classified and whether there are payroll tax issues that require investigation.
Not surprisingly, shares of prominent gig work companies like Doordash, Uber, and Lyft fell precipitously following remarks by Secretary Walsh.
If outsourced work is part of your business model—speak with an experienced tax attorney for guidance before the IRS contacts you for a response.
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