The shared economy, also known as the gig economy, has rapidly grown amid a legal environment that well preceded it.
When most worker classification laws and regulations were passed, lawmakers certainly did not give consideration to the unique way that this sector operates using technology since technology platforms did not exist at the time.
As a result, this rapidly growing sector of the U.S. economy is largely stuck with rules that do not neatly mesh with its common business model, which substantially relies on freelance workers and technology platforms.
For federal employment tax purposes, the relationship between the worker and the employer must be examined to determine if the worker is an employee or an independent worker.
By having employees, an employer must generally withhold federal income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment taxes on all wages. Many employers also offer employee benefits that can include vacation and sick time, and retirement funding.
Generally, under Internal Revenue Service guidelines for determining whether employment taxes apply, a worker is considered to be an employee if the employer controls what work is to be done and how the worker would accomplish the task.
In this strategic white paper, Bradley Adams and Jacqueline Kalk, shareholders at Littler Mendelson, address the question of whether freelance workers are considered employees under the law.
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