Tuesday, November 26, 2019
The Gig Economy
Say that I retire. Perhaps my wife wins the lottery or marries well.
I get bored. Perhaps I would like a little running-around money. Maybe I flat-out need extra money.
I find a website that connects experienced tax practitioners to people needing tax services. There might be specializations available: as a practitioner I might accept corporate or passthrough work, for example, but not individual tax returns. I could work as much or as little as I want. I might work Friday and Saturday afternoons, for example, but not accept work on weekdays. I could turn down or fire clients. I could take time off without fear of dismissal.
There would have to be rules, of course. Life is a collection of rules. I might have to provide my state license to substantiate my credentials. I might have to post an E&O policy. It seems reasonable to expect the website to impose standards, such as for professional conduct, client communications, timeliness of service and so on
How would I get paid?
I am thinking that I would bill through the website. An advantage is that the website can devote more resources than I care to provide, making the arrangement a win-win-win for all parties involved. The website would collect from the client and then electronically deposit to my bank account.
Here is my question: is the website my employer?
Don’t scoff. We are talking the gig economy.
The issue has gained notoriety as states – New Jersey and California come to mind – have gone after companies like Uber and Lyft. From these states’ perspective, the issue is simple: if there is more than a de minimis interdependence between the service recipient and provider, then there must be an employment relationship between the two. Employment of course means FICA withholding, income tax withholding, unemployment insurance, disability insurance (in some cases), workers compensation and so on.
Let us be honest: employment status is Christmas day for some states. They would deem your garden statue an employee if they could wring a dollar out of you by doing so.
New Jersey recently hit Uber with a tax bill for $650 million, for example.
The employee-independent contractor issue is a BIG deal.
What in the world is the difference between an employee and an independent contractor?
People have been working on this question for a long time. The IRS has posited that employment means control – of the employer over the employee – and also that control travels on a spectrum. As one moves to the one end of the spectrum, it becomes increasingly likely that an employer-employee relationship exists.
The IRS looks at three broad categories:
(1) Behavioral control
(2) Financial control
(3) Relationship of the parties
The IRS then looks at factors (sometimes called the 20 factors) through the lens of the above categories.
· Can the service recipient tell you what, where, when and how to do something?
· Is the service recipient the only recipient of the provider’s services?
· Is the service relationship continuing?
Answer yes to those three factors and you sound a lot like an employee.
Problem is the easy issues exist only in a classroom or at seminar. In the real world, it is much more likely that you will find a mix of yes and no. In that event, how may “yes” answers will mean employee status? How many “no” answers will indicate contractor status?
Answer: no one knows.
Some states have taken a different approach, using what is called an “ABC” test. There was a significant case (Dynamex) in California. It interpreted the ABC test as follows:
(1) The service provider is free from the direction and control of the service recipient in connection with the performance of the work.
(2) The service provider performs work outside the usual course of the service recipient’s business.
(3) The service provider is customarily engaged in the independent performance of the services provided.
I get the first one, but I point out that it is rarely all or nothing. If we here at CTG Command bring on a contractor CPA – say for the busy season or to collaborate on a tax area near the periphery of our experience – we would still have expectations. For example,
· our office hours are XXX
· reviewer turnaround times to tax preparers are XXX
· responses to client calls are to occur with XXX hours or less
· responses to me are to occur within X hours or less
· drop-dead due dates are XXX
How many of these can we have before we fail the A in the ABC test?
Let’s look at B.
We are a CPA firm. Odds are we are interested in experienced CPAs. It is quite unlikely that we will have need of a master plumber or stonemason.
Have we automatically failed the B in the ABC test?
And what does C even mean?
I am a 30+ year tax CPA. I am a specialist and have been for many years. I would say that I am “customarily engaged” in tax practice. Do I have “independent performance,” however?
If I interpret this test to mean that I have more than one client, it somewhat makes sense, although there are still issues. For example, upon semi-retirement, I would like to be “of counsel” to a CPA firm. I have no intention of working every day, or of being there endless hours during the busy season. No, what I am thinking is that the firm would call me for specialized work – more complex tax issues, perhaps some tax representation. It would provide a mental challenge but not become a burden to me.
Would I do this for more than one firm?
Doubt it. I point to that “burden” thing.
Have I failed the C test?
I am still thinking through the issues involved in this area.
Including non-tax issues.
If I take an Uber and the driver gets into an accident – injuring me – do I have legal recourse to Uber? Seems to me that I should. Is this question affected by the employee-contractor issue? If it is, should it be?
This prompts me to think that the law is inadequate for a gig economy.
There is, for example, always some degree of control between the parties, if for no other reason than expectation is a variant of control. Not wanting to lose the gig is – at least to me – an incident of control to the service recipient. Talk to a CPA firm partner with an outsized client about expectation and control.
Why cannot CTG Command gig an experienced tax professional – say for a specific engagement or issue - without the presumption that we hired an employee? I can reasonably assure you that I will not be an employee when I go “of counsel.” You can forget my attending those Monday morning staff meetings.
Am I “independently performing” if I have but one client? What if it is a really good client? What if I don’t want a second client?
Problem is, we know there are toxic players out there who will abuse any wiggle room you give them. Still, that is no excuse for bad tax law. Not every person who works – let’s face it – is an employee. The gig economy has simply amplified that fact.