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The line between contractor and employee is a fuzzy one

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Uber settled two class-action labor disputes on Thursday covering 385,000 drivers in California and Massachusetts. Uber agreed to pay up to $100 million to these drivers but will be permitted to continue classifying drivers as contractors, a type of what’s known as contingent worker.

Estimates range for the number of contingent workers in the United States, but it seems to be around 35 percent, maybe as high as 40 percent of the workforce, and the proportion is very cyclical. 

“When we have a recession,” explained Josh Bersin, principal and founder of Bersin by Deloitte, part of Deloitte consulting, “employers lay people off, and then they’ll slowly build back their workforce in a low-risk pattern, and they’ll do that through contract work first.” 

A few extra things may be driving the rise in the contract workforce. One, Obamacare means employees don’t need a full-time job to get health care. Two, technology. Platforms make it possible to commoditize and scale part-time or contingent work arrangements. 

“Fifty-one percent of the companies we surveyed said they expect to do more contingent work, but more than 70 percent of them said they’re not sure they know how and why,” said Bersin.

The decision to take on more contract workers is fraught in and of itself, but even determining how workers should and could be classified is also complex. 

“The IRS has something called the 20-Factor Test to measure whether someone should be considered an independent contractor or employee,” explained Susan Lamotte, founder of Exaqueo, a brand and talent consultancy. The factors include flexibility of work, order of work, location of work and method of payment among many others. Collectively they can be interpreted pretty widely, and it’s usually left to lawyers. But Lamotte said it can be boiled down to one idea:  “Look at how much control the person has over their own work.”

Full-on employees don’t really control where they work, when they work and what they work on.

“An independent contractor has more control over his work, he can do it when and where he wants, and it’s very clear where the work starts and ends,” said Lamotte.

Independent contractors don’t, of course, get benefits nor do they get a lot of legal protections that employees do. So the distinction is something that companies have to get right.  If you treat your employees like they’re contractors and pay them like they’re contractors but work them like they’re full-time staff, they can sue you and the IRS can fine you.

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