Labor Department Says Gig Workers Are Contractors, Not Employees



Labor Department Says Gig Workers Are Contractors, Not Employees -- What Your Small Business Needs to Know

A recent Department of Labor (DOL) opinion letter has said gig workers are independent contractors and not employees. The letter gives sway to employers in the on-demand/sharing economy who say these workers are in business for themselves.

Others point to the fact gig workers are denied benefits and other protections covering overtime and minimum wage. They want these folks classified as employees.

Small Business Trends contacted several experts to find out what your small business needs to know about:



The Department of Labor Weighs In

The opinion letter isn’t legal. It doesn’t carry any legal weight. But it shows the way the DOL is leaning.

Gig Workers are Contractors

Yaniv Masjedi, CMO at Nextiva, says there’s still some paperwork that comes with independent contractors.

“Small business owners can rest easier after the DOL having declared gig workers independent contractors,” he writes in an email. “This means that you’re not on the hook for benefits, overtime, etc.”



But Remember to Follow the Rules

However, that doesn’t mean using an independent contractor is as simple as writing a check.

“You must collect a complete W-9 from them. Unless they reside overseas and will not visit the United States during the fiscal year, otherwise you’ll need a W-8 BEN. If the independent contractor earns $600 or more, you need to give them a MISC-1099,” Masjedi writes.

Gig Workers versus Contractors Versus Employees

Depending on who you talk with, there’s a grey area about how these workers get classified. Shawn McBride, Chief Innovation Officer at McBride For Business, LLC, weighs in.

“Generally, for a company having gig workers is a good thing,” McBride writes.  “Gig workers get  paid with a simple check.”

An Example of the Difference Between and Contractor and an Employee

There are generally no withholdings and small businesses are not responsible for a lot of activities of independent contractors.



Here’s an example McBride uses to draw the line between a contractor and an employee. A roofer hired to put a roof on your house one time who controls how they do the job is a contractor. A secretary who comes in on set hours, uses a company computer and gets told what to do is an employee.

Rules for the Cases In Between

“There are detailed and complicated rules for the cases in between,” McBride writes.  “And that’s where companies can get caught. An incorrect classification can lead to fines and bills for back taxes.”

The Downside of Gig Workers

The path seems to be clear for more companies to use gig workers. And that has some industry experts concerned about the quality of service small businesses offer.

“The majority of small business rely heavily on gig workers,” writes Igor Mitic , Co-Founder of Fortunly.com  “Companies will have a harder time maintaining control over their workers which could affect the quality of services that customers get.”



McKinsey recently addressed this issue in a report. They found there were between 53-68 million gig workers in America today. In the past, relying on this kind of workforce meant that you had to sacrifice quality customer service.

The answer is a flexible customer service department. According to some reports, using flexible workers to supplement staff could be part of the answer.

The Question of Loyalty

There are also questions about gig worker loyalty.

“Gig workers can work for multiple clients. They have few reasons to be loyal to one company,” Mitic writes. “In the long run, this can make it harder for small business. They want reliable workers who are loyal.”



Image: Depositphotos.com 3 Comments ▼


Rob Starr


Rob Starr Rob Starr is a Staff Writer for Small Business Trends. Rob is a freelance journalist and content strategist/manager with three decades of experience in both print and online writing. He currently works in New York City as a copywriter and all across North America for a variety of editing and writing enterprises.

3 Reactions

  1. If you’re a gig worker and filled out a W-9, you’d better be putting away a portion of that money for taxes or you’re in for a big surprise come April.

  2. Aira Bongco

    Yes they are. This is because they work for a specific amount of time or for a specific output.

  3. Robert,

    Have you heard about the hybrid business form, “own employment”? You are involved in the gig economy, but a company is taking care of the administrative stuff and take a cut of your invoice. You are strictly speaking employed by this administrative company, but you are a freelancer at the same time. This form of business activity has become pretty popular in Scandinavia and northern Europe (the United Kingdom).

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