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> 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

> 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.
solidasparagus 6y ago
> > Legally, in California, they can't do that. > Definitely wrong. Based on what? Were you a contractor while AB5 was in place? Everything I have seen suggests that Uber and Lyft will be legally prevented from having drivers that are classified as contractors.
unishark 6y ago
> 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? The AB5 law has only been in effect since Jan 1. The federal rules are already very strict. Generally contractors violate them a lot. The law was pushed by IBM to eliminate competition, and the feds incorrectly thought they would get more tax money by making the software contractor industry into employees. It's a sordid tale ending in domestic terrorism and murder: https://www.nytimes.com/2010/02/19/us/19tax.html https://www.nytimes.com/2010/02/19/us/19tax.html
- aspenmayer 6y ago
  I am saddened to be reminded of the story in your link, as I read it at the time it was posted, and was also saddened then. I’m not convinced you have adequately eliminated other potential reasons he may have done the uncharacteristic thing he did. Even if he was in his right mind, I’m not convinced he had anyone’s interest at heart but his own personal one, as jobs are a form of social control. He desired to be free of this control. Even if individual liberty is worth fighting for, the Constitution doesn’t grant you the right to the job you want on the terms you want. That’s what the courts are for. This guy was wrong to do what he did in every way but for the right reasons in a very minor way that is more a matter of principle rather than tax law. No matter his beef, it was just his own, and as such, it doesn’t justify so much as slapping someone’s hand, let alone the stunt he pulled. I do see your point, though I disagree.
  - unishark 6y ago
    > I do see your point, though I disagree. I'm not clear what point you are referring to. It's possible for all sides in a story to be wrong in their actions.
    - aspenmayer 6y ago
      I’m ending this conversation for violating HN guidelines about argumentative behavior. Flagged.
hn_throwaway_99 6y ago
> Were all those companies breaking the law? This is actually a really good thread, because most people are surprised to discover that yes, those companies probably were "breaking the law". As other posters pointed out, AB5 is relatively new, so the test is relatively stricter now, and only relevant in California. More importantly though, employment classification is only challenged when a plaintiff files a lawsuit. Thus, even if someone is technically misclassified, if the relationship is mutually beneficial, nobody is going to complain. This goes on all the time, which is why most people are surprised to find out they were technically misclassified. Case in point: I worked at a company (in a state much more permissible regarding employment law than CA, and pre AB5) that forbid using the term "contract-to-hire", even though that happened pretty frequently. Reason being that technically contract-to-hire is not legal unless there is a substantial difference in the work and relationship when the person is a contractor. Now, many times there is, but that phrase alone can make it seem like the work contractors do is too similar to the work employees do, which is why our legal department banned the phrase.
- mercer 6y ago
  This is fascinating, although I still feel there's too much disagreement for me to have a clear picture of how this works in California. I'll give a Dutch perspective (which perhaps applies to some degree to other parts of Europe): Until 2016, clients had to proactively ask for a 'Verklaring Arbeidsrelatie (VAR)'. An 'explanation of the work relationship'. If I understand correctly, the contractor/freelancer had to prove that they had more clients than just that one, and it had to be reasonable. So no having five clients of which one accounted for 99% of all income. If a client didn't ask for this 'VAR', it could cause problems down the road. From 2016 on they changed this, but apparently the result has been a confusing mess, so in 2021 they'll try to clear up some of it. Practically speaking, as a contractor, I've found that only the big clients (with legal teams, I imagine) would ask for a VAR, if at all. Most of the time, whether working in Holland or Germany, I usually did the exact same work that their employees did. In some cases there seemed to be vague distinction where I worked on shorter projects and they did support and the like, but in practice that distinction was very blurry. I suppose with some of these clients I could've caused trouble, but because I got paid well, often better than the full-timers (even with insurance and all that deducted), I didn't see any reason to. My general impression is that NL is a bit more 'liberal' in these matters than many other parts of Europe, so I'd be curious to hear how this works in France/Germany/Italy, etc.

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.

solidasparagus 6y ago

> > Legally, in California, they can't do that. > Definitely wrong. Based on what? Were you a contractor while AB5 was in place? Everything I have seen suggests that Uber and Lyft will be legally prevented from having drivers that are classified as contractors.

unishark 6y ago

> 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? The AB5 law has only been in effect since Jan 1. The federal rules are already very strict. Generally contractors violate them a lot. The law was pushed by IBM to eliminate competition, and the feds incorrectly thought they would get more tax money by making the software contractor industry into employees. It's a sordid tale ending in domestic terrorism and murder: https://www.nytimes.com/2010/02/19/us/19tax.html https://www.nytimes.com/2010/02/19/us/19tax.html

aspenmayer 6y ago
I am saddened to be reminded of the story in your link, as I read it at the time it was posted, and was also saddened then. I’m not convinced you have adequately eliminated other potential reasons he may have done the uncharacteristic thing he did. Even if he was in his right mind, I’m not convinced he had anyone’s interest at heart but his own personal one, as jobs are a form of social control. He desired to be free of this control. Even if individual liberty is worth fighting for, the Constitution doesn’t grant you the right to the job you want on the terms you want. That’s what the courts are for. This guy was wrong to do what he did in every way but for the right reasons in a very minor way that is more a matter of principle rather than tax law. No matter his beef, it was just his own, and as such, it doesn’t justify so much as slapping someone’s hand, let alone the stunt he pulled. I do see your point, though I disagree.
- unishark 6y ago
  > I do see your point, though I disagree. I'm not clear what point you are referring to. It's possible for all sides in a story to be wrong in their actions.
  - aspenmayer 6y ago
    I’m ending this conversation for violating HN guidelines about argumentative behavior. Flagged.

hn_throwaway_99 6y ago

> Were all those companies breaking the law? This is actually a really good thread, because most people are surprised to discover that yes, those companies probably were "breaking the law". As other posters pointed out, AB5 is relatively new, so the test is relatively stricter now, and only relevant in California. More importantly though, employment classification is only challenged when a plaintiff files a lawsuit. Thus, even if someone is technically misclassified, if the relationship is mutually beneficial, nobody is going to complain. This goes on all the time, which is why most people are surprised to find out they were technically misclassified. Case in point: I worked at a company (in a state much more permissible regarding employment law than CA, and pre AB5) that forbid using the term "contract-to-hire", even though that happened pretty frequently. Reason being that technically contract-to-hire is not legal unless there is a substantial difference in the work and relationship when the person is a contractor. Now, many times there is, but that phrase alone can make it seem like the work contractors do is too similar to the work employees do, which is why our legal department banned the phrase.

mercer 6y ago
This is fascinating, although I still feel there's too much disagreement for me to have a clear picture of how this works in California. I'll give a Dutch perspective (which perhaps applies to some degree to other parts of Europe): Until 2016, clients had to proactively ask for a 'Verklaring Arbeidsrelatie (VAR)'. An 'explanation of the work relationship'. If I understand correctly, the contractor/freelancer had to prove that they had more clients than just that one, and it had to be reasonable. So no having five clients of which one accounted for 99% of all income. If a client didn't ask for this 'VAR', it could cause problems down the road. From 2016 on they changed this, but apparently the result has been a confusing mess, so in 2021 they'll try to clear up some of it. Practically speaking, as a contractor, I've found that only the big clients (with legal teams, I imagine) would ask for a VAR, if at all. Most of the time, whether working in Holland or Germany, I usually did the exact same work that their employees did. In some cases there seemed to be vague distinction where I worked on shorter projects and they did support and the like, but in practice that distinction was very blurry. I suppose with some of these clients I could've caused trouble, but because I got paid well, often better than the full-timers (even with insurance and all that deducted), I didn't see any reason to. My general impression is that NL is a bit more 'liberal' in these matters than many other parts of Europe, so I'd be curious to hear how this works in France/Germany/Italy, etc.