Independent Contractor or Employee??

Worker classification…who knew it was so complicated??

The recent court decision in Uber v. Berwick has further cloudied the waters of the employee/contractor dilemma.

In Uber v. Berwick, Barbara Berwick claimed she was an employee of Uber, while Uber claimed she was an independent contractor.  In the end, the California court sided with Berwick and classified her as a Uber employee.

Why does this matter?

The tax treatment of employees is vastly different than the treatment of independent contractors.

On the employer’s side, if a worker is classified as an employee, the employer is responsible for unemployment taxes, half of the social security and medicare taxes, and workers compensation insurance.  Additionally, the employee may be entitled to certain benefits not available to non-employees (independent contractors), such as health care and reimbursement of business expenses.

From the employee’s perspective, being classified as an independent contractor leaves them on the hook for 15.3% of social security and medicare taxes rather than the 7.65% paid as an employee.  There will also be no workers compensation insurance or unemployment insurance as a safety net.  An independent contractor will receive 100% of their pay up front and will be responsible for settling with the IRS and state tax authority, usually with quarterly tax payments.  This often comes as a surprise to contractors at tax time!

The IRS has complex rules related to worker classification, which can be confusing to workers and employers alike.  Many factors are considered, including the location of the work performed, the work schedule, and the support provided.  It is important for all parties that the worker be appropriately classified from Day One.

If there is any doubt about the proper tax classification, it is best to consult with a tax professional who can advise you on your specific situation.  Please feel free to contact me if you have any questions!