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3 Risks of Hiring Independent Contractors

Author BILL HORTTOR


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A great deal goes into planning a seamless event that will leave your guests reminiscing for weeks to come. Venue booked? Check. Invites sent? Check. Entertainment covered? Yep. The list goes on. But nothing can make or break the success of an event quite like the caliber of the hospitality on your team – the ones working all day and night to ensure your guests will look back on your event as nothing short of epic.

Finding short-term event staff who you can feel confident about can be tricky. While you may be tempted to turn to online platforms that promise workers quickly in your area, be warned, you may not be seeing the full picture.

In many cases, workers who come through gig platforms are 1099 workers or independent contractors – there are serious risks that companies who use 1099 labor need to know. Here are the top three.

Risk #1: The government is cracking down on worker misclassification

With the rise of gig workers has come the rise of worker misclassification lawsuits. In fact, many state-wide studies have shown that anywhere between 10-20% of employers misclassify their workers (intentionally or not). Workers officially classified as “employees” (i.e., not independent contractors) are granted certain protections at a state and federal level – we’re talking guaranteed minimum wage, overtime pay, healthcare, all the essentials. Because of these protections, misclassifying a worker as a contractor when they act as an “employee” can land businesses into some serious hot water.

New lawsuits are arising that highlight the growing liability of working with independent contractors – and no two companies are more familiar with this recent buzz than California-based rideshare platforms Uber and Lyft. Because drivers on these platforms are technically classified as independent contractors, they’re not protected by overtime or workers’ compensation laws, even though they work long days, have no control over their rates, and provide the sole service for the companies’ profits.

It can all feel like one big gray area. To combat this, the IRS developed an official three-point test to determine if a worker should be classified as an independent contractor or an employee.

  • Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  • Financial: Are the business aspects of the worker’s job controlled by the payer? (These include things like how workers are paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  • Type of Relationship: Are there written contracts or employee type benefits (i.e., pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Before we move on, it’s worth mentioning that some companies utilize gig platforms that offer both 1099 and W2 workers, only increasing the potential liability. In these arrangements, the business does not know what type of worker they will be getting before the day of the assignment. Even if only one worker is W2, it implicates guilt of misclassification with the other 1099 staff. If the business utilizing the gig platform is ever under government scrutiny for worker misclassification, the fact that they used both 1099 and W2 labor for the same job will raise red flags.

Risk #2: Misclassification could leave you on the hook for unpaid wages

As mentioned above, if the IRS finds workers are misclassified as independent contractors under the three-point test, businesses could be liable for thousands in unpaid wages.

Thinking back to recent lawsuits against rideshare services, one driver estimated that if he were paid the minimum wage and overtime per California’s labor laws, Uber would owe him upwards of $150,000 for his three years of service. In 2019, Uber Settled a $20-million class-action lawsuit to its drivers in California and Massachusetts.

Risk #3: Navigating potential liability can be a minefield

There is one common enemy to all event planners – unknown variables. The idea that anything, big or small, could cause a domino reaction and ruin the evening is terrifying. When working with independent contractors, unknown variables and the subsequent liabilities are an inherent risk. Here are a few common compliance concerns you should be mindful of:

  • Tax liability: The risk of misclassification when engaging with independent contractors can leave your business liable for state and federal taxes, social security, disability, unemployment, and more.
  • Workplace injuries: Independent contractors are not covered by workers’ compensation and thus can leave you liable to pay any injuries they might incur on the job.
  • Liquor liability: If you’re engaging an independent contractor to serve alcohol at your event without liquor liability insurance, you could be held liable for any damages or injuries that arise because of the sale or service of alcohol.

An Alternative Solution

The truth is, while gig platforms might promise the world, the only thing businesses are guaranteed is a connection with a job seeker – well, and all the potential liability that goes along with 1099 workers. If the realities above seem like a headache, you have other options.

When working with a short-term staffing provider for your event needs, like Party Staff, you’re protected from any and all angles.

Our talent is covered with full workers’ compensation insurance (it’s illegal to employ staff without this insurance), five million dollars in general liability insurance, and one million dollars in liquor liability insurance. We pay and administer all legally required payroll taxes, including social security, state disability, and unemployment, as well as state and federal taxes on behalf of our staff and clients. Plus, we carry one million dollars in employment practices liability insurance to further mitigate risk. Need staff ASAP? No problem – that’s what we’re good at. We have a network of seasoned hospitality pros we’ve worked with in the past who are ready to leave a stellar first impression.

You’re producing a one-of-a-kind event – make sure you have epic hospitality staff to pull it off. Our honest event staffing solutions are fine-print free. You’ll always be protected, that’s our guarantee. Request a quote today!