The recent GrubHub ruling related to the classification of “gig economy” workers may have left you scratching your head. After all, it wasn’t too long ago when a judge ordered Uber to pay its drivers a hefty $100 million as part of a class-action lawsuit. Yes, that settlement was later thrown out. But, that’s only because the amount awarded was considered insufficient.
In fact, a new judge deemed the amount “not fair, adequate, and reasonable.” He said the agreed-upon amount “represented a ‘substantial discount’ far below the potential total damages Uber drivers could claim.” The plaintiffs estimated those damages at $850 million. And, though Uber’s value was then $62.5 billion, it is still a large price to pay.
On the other hand, the GrubHub ruling was a clear-cut case for its judge, who ruled in the company’s favor vs the independent contractor. The latter had claimed misclassification and deprivation of wages. Yet, a detailed look at the case contends that drivers “set their own schedules by signing up for ‘blocks’ when they wanted to work.” Or, they simply didn’t sign up. When they did choose to work, GrubHub had “little to no” rule on how they delivered food or how long it took to make the deliveries. And, when not working for GrubHub, drivers were also able to work for the company’s competitors. Other liberties related to means for transportation and appearance. The bottom line is, GrubHub showed lack of control over its workers, which is a key indicator when classifying independent contractors.
With event and experiential marketing, however, event staffing agencies, marketing agencies, and brands can’t take such liberties. Maintaining control is a necessity. So, as you deliberate 1099 vs W2, there is no gray area. When you hire event staff – even when through an event staffing agency – the answer is always W-2. Otherwise, your activations may suffer and your business faces risk.
The IRS is very clear when it comes to classifying workers as 1099 vs W-2. It says, “anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.”
In event and experiential marketing, choosing independent contractors to staff your events – and staying within the confines of the law – means you cannot impose a work schedule, nor can you specify where work takes place. You cannot tell them how to dress, what to say or how to carry out your plans. And if you, or your staffing partner, hires staff as 1099 contractors yet treats them like employees, you are exposing your company to a number of risks.
As we’ve seen with Uber, employee misclassification can come with legal consequences and significant financial risks. While this is an extreme, high-profile example, according to the law, no company is exempt. The Payroll Fraud Prevention Act, an expansion of the Fair Labor Standards Act, makes it all clear.
When you hire event staff, whether as independent contractors or W-2 employees, you must be clear about their status. No matter which, the bill makes it illegal to discharge or discriminate against those who file complaints related to their classification. It also entitles misclassified individuals to recuperate lost wages. And, the Act “doubles the amount of liquidated damages for unpaid wages and misclassifications of employees.” Companies are also subject to civil penalties of $1,100 for each misclassification violation and up to $5,000 for those repeated or willful. This may be in addition to liability for back taxes, workers’ compensation and other missed payments or benefits. Then include legal fees. It adds up fast.
Finally, it’s important to consider other aspects of trust in your 1099 contract event staff. Should one fail to pay taxes, an IRS audit may lead back to your company, which should’ve classified the individual as a W-2 employee from the start. The independent contractor may take the heat off of himself by pointing a finger at you.
When partnering with an event staffing agency, brands or agencies may believe the risk of employee misclassification lies with the staffing partner. That is, if they even think to ask the staffing agency how its event staff are classified. Yet, the fact is, a risk for co-employment exists for anyone involved. This includes anyone from the marketing agency or brand who happens to be on-site at the event, providing direction, when independent contractors shouldn’t be receiving any. This would make the brand or agency representative qualify as co-employers and made liable for any damages resulting from misclassification.
Further, because the brand or agency contracting the service often has more resources than the event staffing agency, these entities could become the focus of lawsuits or claims. And, when the event staffing agency doesn’t have the funds to pay their part, the contracting company might be asked to assume the fees and fines. In short, no involved party is safe from the risks associated with employee misclassification.
The process to hire event staff is more than just filling a position with a warm body. In addition to finding the best people to represent the brand, hiring entities must clearly understand the risks of employee misclassification. Therefore, many brands and agencies partner with event staffing agencies, as they know the benefits of having professional expertise in this area. The brand and agency need only evaluate potential partners to ensure they provide the service and protection they need.
The right staffing partner will be more than their talent rates, agency costs, or their talent pool. They will know the right answer to the 1099 vs W-2 question. And, they will make it their policy to account for taxes, workers’ compensation, liability insurance, minimum wage/overtime laws, and other labor-related issues. Their commitment to your success and that of the event staff will always begin with your company’s legal protection.
As a 100% W-2 agency, we know the ins and outs of employee classification as it relates to your safety and success. Trust us to hire event staff that keep companies safe and make brands shine.