5 ms·

> "it is important to understand that you never really get to 'choose' whether you're a contractor or an employee, it's determined solely as a function of the t

> "it is important to understand that you never really get to 'choose' whether you're a contractor or an employee, it's determined solely as a function of the type or work you do and the nature of your relationship to the employer" I don't understand what you're trying to say here. In my experience, on both sides of this, a good deal of thought is put into what kind of position to seek / offer. I think employers and workers think a lot about which legal arrangement would work better and there is a great deal of choice involved. For instance, I can imagine Uber offering jobs v.s. contractor positions with differing levels of support, remuneration, and expectations. That they don't do so seems like a choice to me?

hn_throwaway_99 6y ago
> I can imagine Uber offering jobs v.s. contractor positions with differing levels of support, remuneration, and expectations. Legally, in California, they can't do that. As outlined in the article, the 'ABC test' is the legal test for determining whether someone is an employee or a contractor. The 'B' part of that test is "The worker performs work that is outside the usual course of the hiring entity's business." If you are an employer, you could not have one group of drivers that you classify as employees and the other you classify as contractors, not if they're basically doing the same work. Note this is common in a lot of different businesses, and there have been many lawsuits where contractors who DID want to be classified as employees argued that they were basically doing the same work as employees. There was a fairly famous case involving Microsoft 2 decades ago: https://www.computerworld.com/article/2589538/it-personnel-microsoft-to-pay-97-million-to-settle-permatemp-case.html https://www.computerworld.com/article/2589538/it-personnel-m...
- shrimpx 6y ago
  > argued that they were basically doing the same work as employees I think that's case by case though. Contractors usually do finite focused projects and don't want to be employees. I myself was self-employed for 5 years doing specific contracts as a software engineer. I was "writing code" which is "the same work" as employees. Were all those companies breaking the law? > Legally, in California, they can't do that. Definitely wrong.
  - jlokier 6y ago
    In the UK, the government has taken the view that in some sense, yes, some contractors who were claiming to be self-employed were in fact employees and therefore have to pay more tax (the same tax as other employees), and can claim fewer expenses against tax (also the same as other employees). The underlying principle is equal treatment. There is no advantage to the individuals from that decision, nor is there any intended. So people spending 5 years working for the same company doing the same commute and same work as employees, subject to the same kind of control over their work etc., cannot maintain a claim to be self-employeed for the tax flexibility that goes with that. However. You "writing code" as a contractor is not the same work as an employee if the manner in which you are doing it differs. For example, if you have to purchase your own equipment, set your own hours, work on a "statement of work" basis instead of set hours, can substitute a subcontractor to do your work for you, and can and sometimes do work for multiple companies at the same time, and often switch the site at which you are working, those sorts of things signify that you are not operating as an employee would, and that it would be correct to classify you as running your own business and therefore subject to business taxation instead. Of course every contractor wanted to claim that status for the tax benefits, which are basically less income tax and the ability to deduct more expenses. The government saw this and decided, although the law was what it was all along, people weren't applying it adequately. So they changed who does the assesment, and the tax liability if they get it wrong, from the contractor to the company hiring them. This is called the IR35 reform; IR35 is the name of the legislation that sets out what kind of working patterns must be treated as employment for tax purposes. Although the reform will change who is liable for making the assessment, in principle it is still possible for a contractor to be retroactively assessed for their past as having been an employee all along, and have to pay back-tax. That's because you are supposed to have done the right assessment for yourself already, or perhaps your accountant should. This seems unlikely for most people now as long as the changes are followed through, but some people have been caught out by it.
    - 72deluxe 6y ago
      A very informative overview, thank you.
  - 6y ago
- drdaeman 6y ago
  Would setting up another company that would employ drivers and provide services to Uber do the legal trick? I don't know about Uber in US, but in Russia this is how it typically works. Drivers are hired by local taxi companies, which partner with large-scale Uber-like aggregators. This way, user-facing (aggregator) companies don't have drivers as employers, but contract other companies (or individual drivers, shall they want to act as sole proprietors) for the actual transportation services.
  - TedDoesntTalk 6y ago
    > Would setting up another company that would employ drivers and provide services to Uber do the legal trick? That is exactly how software development contract jobs are handled in the US. They are called contract companies (and many other names) but essentially find talent, place them at a contract position, then bill the company for that contractor. They pay the contractor directly, with or without benefits (W-2 vs 1099). And in most cases, the contractor gets to choose contract or employee status with the contract company, although at different pay.
- aeturnum 6y ago
  Gotcha - so a company can choose to use employees or contractors for a given type of work, but must be consistent within that type of work? So, for instance, you might hire initially a contractor to create the encrypted part of your product, but once you had hired someone to do that work full time you would be legally barred from hiring additional contractors to do that?
  - hn_throwaway_99 6y ago
    > so a company can choose to use employees or contractors for a given type of work, but must be consistent within that type of work? Pretty much, though even then it is determined by what the courts decide is the company's "normal course of business." Obviously there are big gray areas here. And, also obviously, there are many cases where both the worker and the employer would prefer to treat the relationship as a contractor relationship, and if they both agree there is nobody to file a lawsuit contesting it (unless, of course, there are lots of people in the exact same role who could challenge the classification, as is the case with Uber). Also, note while there are federal rules that determine IRS classification, California has stricter laws when it comes to employee vs contractor.
- sytelus 6y ago
  You are interpreting it all wrong. Staff augmentation happens all the time who do same work as employees. The fundamental difference is amount of time you are hiring the person for. If you say I need person to augment my existing staff only for 6 months then they need not be employee. This is why many contractors are forced on leave after certain number of months. A contractor may also chose to work, say, 20hr per week. Being a contractor is not fundamentally bad if US hadn’t tied medical insurance and companies hadn’t tied stock bonuses with employment. Technically there is no such need for “employment”. You go work for the time and you get paid equitably without an artificial status called “employment”. Unfortunately this status has became part of many arcane laws and difficult to get rid of.
  - hn_throwaway_99 6y ago
    No, I am not interpreting it all wrong. You are fundamentally misinformed about what AB5 in California allows. And while I agree, there are many cases where staff augmentation exists, in many of those cases employees would be misclassified under AB5. Also, in many of those cases of staff augmentation the person is hired through as an employee of a staffing company, not as a 1099 contractor by the client company. Edit: Good article and video about how AB5 affects technology consultants: https://www.viodi.tv/2019/11/15/will-ab5-drive-software-engineers-out-of-california/ https://www.viodi.tv/2019/11/15/will-ab5-drive-software-engi...
  - dragonwriter 6y ago
    > The fundamental difference is amount of time you are hiring the person for. That's not the fundamental difference in either federal law or the California ABC test. It's not a factor in the ABC test, [0] and it's one of several factors in the “relationship” prong of the federal test. [1] [0] https://www.californiaemploymentlawreport.com/2019/03/understanding-the-abc-test-for-independent-contractors-in-california/ https://www.californiaemploymentlawreport.com/2019/03/unders... [1] https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation https://www.irs.gov/newsroom/understanding-employee-vs-contr...

hn_throwaway_99 6y ago

> I can imagine Uber offering jobs v.s. contractor positions with differing levels of support, remuneration, and expectations. Legally, in California, they can't do that. As outlined in the article, the 'ABC test' is the legal test for determining whether someone is an employee or a contractor. The 'B' part of that test is "The worker performs work that is outside the usual course of the hiring entity's business." If you are an employer, you could not have one group of drivers that you classify as employees and the other you classify as contractors, not if they're basically doing the same work. Note this is common in a lot of different businesses, and there have been many lawsuits where contractors who DID want to be classified as employees argued that they were basically doing the same work as employees. There was a fairly famous case involving Microsoft 2 decades ago: https://www.computerworld.com/article/2589538/it-personnel-microsoft-to-pay-97-million-to-settle-permatemp-case.html https://www.computerworld.com/article/2589538/it-personnel-m...

shrimpx 6y ago
> argued that they were basically doing the same work as employees I think that's case by case though. Contractors usually do finite focused projects and don't want to be employees. I myself was self-employed for 5 years doing specific contracts as a software engineer. I was "writing code" which is "the same work" as employees. Were all those companies breaking the law? > Legally, in California, they can't do that. Definitely wrong.
- jlokier 6y ago
  In the UK, the government has taken the view that in some sense, yes, some contractors who were claiming to be self-employed were in fact employees and therefore have to pay more tax (the same tax as other employees), and can claim fewer expenses against tax (also the same as other employees). The underlying principle is equal treatment. There is no advantage to the individuals from that decision, nor is there any intended. So people spending 5 years working for the same company doing the same commute and same work as employees, subject to the same kind of control over their work etc., cannot maintain a claim to be self-employeed for the tax flexibility that goes with that. However. You "writing code" as a contractor is not the same work as an employee if the manner in which you are doing it differs. For example, if you have to purchase your own equipment, set your own hours, work on a "statement of work" basis instead of set hours, can substitute a subcontractor to do your work for you, and can and sometimes do work for multiple companies at the same time, and often switch the site at which you are working, those sorts of things signify that you are not operating as an employee would, and that it would be correct to classify you as running your own business and therefore subject to business taxation instead. Of course every contractor wanted to claim that status for the tax benefits, which are basically less income tax and the ability to deduct more expenses. The government saw this and decided, although the law was what it was all along, people weren't applying it adequately. So they changed who does the assesment, and the tax liability if they get it wrong, from the contractor to the company hiring them. This is called the IR35 reform; IR35 is the name of the legislation that sets out what kind of working patterns must be treated as employment for tax purposes. Although the reform will change who is liable for making the assessment, in principle it is still possible for a contractor to be retroactively assessed for their past as having been an employee all along, and have to pay back-tax. That's because you are supposed to have done the right assessment for yourself already, or perhaps your accountant should. This seems unlikely for most people now as long as the changes are followed through, but some people have been caught out by it.
  - 72deluxe 6y ago
    A very informative overview, thank you.
- 6y ago
drdaeman 6y ago
Would setting up another company that would employ drivers and provide services to Uber do the legal trick? I don't know about Uber in US, but in Russia this is how it typically works. Drivers are hired by local taxi companies, which partner with large-scale Uber-like aggregators. This way, user-facing (aggregator) companies don't have drivers as employers, but contract other companies (or individual drivers, shall they want to act as sole proprietors) for the actual transportation services.
- TedDoesntTalk 6y ago
  > Would setting up another company that would employ drivers and provide services to Uber do the legal trick? That is exactly how software development contract jobs are handled in the US. They are called contract companies (and many other names) but essentially find talent, place them at a contract position, then bill the company for that contractor. They pay the contractor directly, with or without benefits (W-2 vs 1099). And in most cases, the contractor gets to choose contract or employee status with the contract company, although at different pay.
aeturnum 6y ago
Gotcha - so a company can choose to use employees or contractors for a given type of work, but must be consistent within that type of work? So, for instance, you might hire initially a contractor to create the encrypted part of your product, but once you had hired someone to do that work full time you would be legally barred from hiring additional contractors to do that?
- hn_throwaway_99 6y ago
  > so a company can choose to use employees or contractors for a given type of work, but must be consistent within that type of work? Pretty much, though even then it is determined by what the courts decide is the company's "normal course of business." Obviously there are big gray areas here. And, also obviously, there are many cases where both the worker and the employer would prefer to treat the relationship as a contractor relationship, and if they both agree there is nobody to file a lawsuit contesting it (unless, of course, there are lots of people in the exact same role who could challenge the classification, as is the case with Uber). Also, note while there are federal rules that determine IRS classification, California has stricter laws when it comes to employee vs contractor.
sytelus 6y ago
You are interpreting it all wrong. Staff augmentation happens all the time who do same work as employees. The fundamental difference is amount of time you are hiring the person for. If you say I need person to augment my existing staff only for 6 months then they need not be employee. This is why many contractors are forced on leave after certain number of months. A contractor may also chose to work, say, 20hr per week. Being a contractor is not fundamentally bad if US hadn’t tied medical insurance and companies hadn’t tied stock bonuses with employment. Technically there is no such need for “employment”. You go work for the time and you get paid equitably without an artificial status called “employment”. Unfortunately this status has became part of many arcane laws and difficult to get rid of.
- hn_throwaway_99 6y ago
  No, I am not interpreting it all wrong. You are fundamentally misinformed about what AB5 in California allows. And while I agree, there are many cases where staff augmentation exists, in many of those cases employees would be misclassified under AB5. Also, in many of those cases of staff augmentation the person is hired through as an employee of a staffing company, not as a 1099 contractor by the client company. Edit: Good article and video about how AB5 affects technology consultants: https://www.viodi.tv/2019/11/15/will-ab5-drive-software-engineers-out-of-california/ https://www.viodi.tv/2019/11/15/will-ab5-drive-software-engi...
- dragonwriter 6y ago
  > The fundamental difference is amount of time you are hiring the person for. That's not the fundamental difference in either federal law or the California ABC test. It's not a factor in the ABC test, [0] and it's one of several factors in the “relationship” prong of the federal test. [1] [0] https://www.californiaemploymentlawreport.com/2019/03/understanding-the-abc-test-for-independent-contractors-in-california/ https://www.californiaemploymentlawreport.com/2019/03/unders... [1] https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation https://www.irs.gov/newsroom/understanding-employee-vs-contr...