From Spend Matters, Kaitlyn McAvoy (KM) and Andrew Karpie (AK) discuss the challenges of properly classifying workers as employees or independent contractors. They also discuss the increased focus on this issue:
KM: Why does it seem this is becoming a more widespread issue? Is it just that the rise of the “gig economy” and the growing number of independent workers is making this a more present, pressing issue?
AK: Well, the issue really goes back to the early 1990s. Companies were using a lot of ICs, but then the IRS realized that there was leakage of tax revenues — ICs were not paying all their taxes — and it clamped down on compliance and enforcement. Companies quickly moved away from using ICs to engaging contingent workers though temp staffing firms (as “employers of record”) or just hiring them as employees for short-term engagements. And by the way, for a long time there have been industries that rely heavily on ICs and freelancers — journalism, trucking, real estate — either because they really are ICs or because laws have been passed to legalize the arrangement in those industries.
The classification problem got really stirred up again, because (1) after the Great Recession, more workers started to turn away from employment and look for an independent path and take control of their own destinies and (2) new kinds of platform-based businesses emerged and rapidly scaled to act as a new type of intermediary; many viewed themselves as simple technology businesses that allowed two parties to arrange work, and they seemed to have thought that classification and co-employment issues would not arise. As we know, this did not turn out to be the case.
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