USDOL in Fight for Independent Contractor Compliance

taxes-646511_640The U.S. workforce is changing. With the proliferation of companies like Uber, Lyft, TaskRabbit, and UpWork utilizing new on-demand economy business models, the contingent workforce in the U.S. has been steadily growing. The U.S. Government Accountability Office estimated in 2015 that more than 40% of the U.S. workforce participated in contingent work arrangements. In 2006, just 35% of the U.S. workforce was contingent–representing a 14% increase in contingent work in under 10years.

In the on-demand economy, independent contractors are an important component of the contingent workforce. The American Action Forum reviewed data from a variety of sources and estimated that 28.8% of all jobs added during the recent economic recovery were independent contractor positions, further solidifying just how much this workforce segment is growing.

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Reward and Risk

The on-demand economy and growing independent contract work presents opportunity for both companies and workers. Companies can quickly adjust to fluctuating demand and keep overhead low, while workers enjoy flexibility and autonomy in their assignments. However, this new structure also presents significant risk for employers and may bring potential lawsuits, government fines, and penalties.

One recent study from the Kogod Tax Policy Center at American University revealed that a majority of people who worked for on-demand service platforms in 2014 didn’t earn enough to have their income reported to the IRS. State and federal governments could be missing out on significant amounts of taxes that would be collected with other work arrangements, and with participation in this type of work growing, figures are likely higher for 2015 and 2016.

Preventing Lost Revenue

The federal government is teaming up with state governments to ensure compliance with labor laws and to prevent tax avoidance by both companies and contractors. More than 30 states, including most recently Virginia, have joined the Department of Labor (DOL) Misclassification Initiative. Participating states work to form agreements with the DOL to share data, coordinate investigations, and collaborate more closely in initiatives to promote and enforce independent contractor compliance. This collaboration is designed to increase exposure if misclassification is found, opening up more potential for state and federal governments to recover taxes lost to misclassified employment agreements.

A Global Trend

This trend of increased information sharing and crackdowns on lost tax revenue is also occurring outside of the U.S. Engaging employees and independent contractors abroad adds a layer of complexity for U.S. companies, making it even more difficult to understand all of the rules surrounding workforce activation and independent contractor compliance.

As more government bodies band together to share information and collaborate on investigations, it will become increasingly more important for companies to be fully aware of the rules and potential pitfalls of engaging independent contractors. And as we move towards tax and budgeting season, it is important for companies to take the necessary steps and engage experts to ensure independent contractor compliance despite often complicated and conflicting information, in the U.S. and as they expand their workforce abroad.

 

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Jeff Phelps

Jeff Phelps
Jeff Phelps is the Chief Executive Officer and co-founder of iWorkGlobal and is responsible for setting the strategic direction and oversight of the firm’s global operations.

Jeff Phelps

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  24. […] The U.S. workforce is changing. With the proliferation of companies like Uber, Lyft, TaskRabbit, and UpWork utilizing new on-demand economy business models, the contingent workforce in the U.S. has been steadily growing. The U.S.  […]

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