An increase in legal action forcing employers to reclassify contract workers as full-time employees could drive up labor costs significantly and heighten scrutiny on applications for workers’ compensation insurance.
Though no firm statistics are available on the size of the freelance economy, consulting firm MBO Partners estimated in 2014 that as many as 17.9 million Americans work as contract employees for 15 hours or more each week. And though the popularity of “1099 workers” – thus named for their tax status – is growing, so are court decisions ruling that many of these workers are misclassified and are due full employment benefits, including healthcare, training programs, travel reimbursements and workers’ compensation.
Such lawsuits and the additional expenses attached to reclassification could increase the cost of labor by 20% to 40%, a Wall Street Journal report estimated this week.
The misclassification of workers is particularly common in businesses such as dentist offices and nail salons, or for workers in the sales profession. Additionally, lawsuits against Uber and other app-related services like Homejoy and Luxe, have raised significant questions about the responsibility of “on-demand” companies.
“Many of these companies operate on very thin margins – not all can absorb the hit of having to switch to an employee workforce,” Jamie Davison, a partner at Redpoint Ventures, told the newspaper. “There is a real regulatory risk here, which we have to weigh, that some of these companies could owe millions in back wages and taxes.”
For insurance agents, the heightened scrutiny means additional pressure to help employers correctly classify employees. That’s something many companies and agents overlook while submitting workers’ compensation applications, said La’Troya McKinney, commercial lines account manager with Abram Interstate Insurance Services in California.
“One thing I always tell people is that 1099 is not an employment status,” McKinney said. “If an employer is scheduling their time, telling them who to see or where to go, they are an employee under the labor code and they can be fined up to $150 per day per employee for not having comp in place.”
She added that though these stipulations apply primarily in California – where 1099 status is under strictest review – it doesn’t hurt for agents across the country to adopt a similar no-risks attitude.
“I tell people that if they base their decisions off regulations in what is one of the most rigid states, they can’t go wrong,” she said.
