Nike may have misclassified thousands of temporary office workers and faces potential tax fines of more than $530m, according to documents obtained by the Guardian.
The sporting goods company employs more than 79,000 people worldwide, and, like many large corporations, relies on an army of independent contractors to do much of the work, including business consulting, T-shirt graphics, photography and event planning.
According to independent reports compiled for the company and given to the Guardian, Nike management’s handling of independent contractors has left it open to potentially huge fines from tax authorities and the possibility of class-action lawsuits.
The US, UK and other countries have strict rules about the use of independent contractors, meant to protect workers’ rights and ensure fair tax collection. The Biden administration last year indicated it intends to crack down on companies that infringe them.
Companies can be liable for holiday pay, sickness benefits and pension contributions if they wrongly classify workers as freelancers when they should be designated as employees.Heavy penalties have been levied against companies found breaking the rules.
A July 2022 review of Nike’s independent contractors in the US, UK, Netherlands and Belgium concluded that the company faces a “misclassification risk” of more than $530m.
The report, compiled by People2.0, a workforce services specialist, looked at 3,670 entities – independent contractors, law firms, individuals and others – in the US who had been paid over $7.2bn over three years. It found that a quarter of those contractors may have been incorrectly classified. Those contractors received more than $1.2bn in payments. Nike’s potential liability for those payments in the US alone totals $293.2m, according to the report.
People2.0’s report found similarly large numbers of problematic payments to outside entities in the UK, Netherlands and Belgium, and concluded that Nike faced potential fines of $53.7m in the UK, $76.4m in Netherlands and $106.8m in Belgium – a total liability of over $530m.