March 04, 2016

How do you tell an Employee from an Independent Contractor?

It’s not a joke. The so-called gig – or sharing – economy has received a great deal of attention lately as it promises – or threatens – to transform the American workplace into a nation of freelancers, contractors and temps. One study estimates that the number of jobs now performed by free agents in the U.S. grew from 20 to 32 million between 2001 and 2014 and now comprises 18 percent of all jobs. Call it the “Uber Effect,” and while it’s a boon to workers who desire greater autonomy and flexibility in their jobs, it has proven to be a quandary for employers who either willfully or unwittingly misclassify their workers as independent contractors instead of employees. And trucking is caught in the crossfire.

The consequences of misclassification can be severe.

As Fleet Owner reported, the California Labor Commission recently ruled that 38 drayage drivers for Pacific 9 Transportation were misclassified as independent contractors and awarded almost $6.9 million in back wages.  In a massive class action law suit filed in California, thousands of Uber drivers are suing the company for damages, claiming that they have been misclassified as independent contractors and denied compensation for their expenses. The trial is scheduled to go before a jury June 20 in San Francisco and many industries – including trucking – will be watching the outcome with anxiety.

The issue has gained even more traction with the recent release of a report by the Economic Policy Institute that estimates between ten and twenty percent of all workplaces misidentify at least one worker as an independent contractor. They called out the trucking industry specifically.

Misclassification is most common in industries where it is most profitable (such as construction, where workers’ compensation insurance premiums are high), and in industries with scattered worksites where work is performed in isolation. Housecleaning, in-home care, and trucking are industries in which misclassification is particularly common.

As states clamp down, the Labor Department has issued a six question appraisal to help employers recognize the distinctions between an employee and an independent contractor.  Sample Question: “Is the work performed by the individual an integral part of the employer’s business?” If so, that person is more properly classified as an employee. For many trucking fleets, this is entirely the case.

At ProSight, we feature settlement carrier coverage that protects you in the event an accident occurs, a loss is reported and your driver was wrongly classified as an employee. If you have a traditional contractor model, you are exposed to costs potentially in the millions of dollars.  However as a broker/motor carrier, the likelihood of a costly employee reclassification is substantially reduced. The ProSight transportation team has the expertise to manage and support the shift to a proper broker/motor carrier model. Additionally, ProSight offers unique coverage for this model to help mitigate the damages you do incur. That’s just one of the extraordinary benefits of ProSight Specialty insurance

This blog is intended for informational purposes only.  It is provided by ProSight solely as a courtesy to its customers and is not to be construed as containing any legal, tax or financial advice.  This blog provides only general information related to the subjects discussed herein and therefore cannot take into account any reader’s personal circumstances or objectives.  Readers of this blog are strongly urged to consult with their own legal, tax and financial professionals before applying any of the information provided herein to their own circumstance.  ProSight does not represent, warrant or guarantee that any particular outcome will be achieved by utilization of information contained in this blog.