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Under The Table: Moving Industry Standards
1099 Subcontractor - vs - W2 Employee
The moving industry often finds itself at the crossroads of various employment classifications.
Understanding the differences between a 1099 subcontractor and a W2 employee is crucial, especially for moving companies that own the trucks, provide uniforms, and assign worker schedules.
Here’s a detailed look at why it is almost impossible to pay under the table by classifying such workers as 1099 subcontractors under these conditions.
1099 Subcontractor vs. W2 Employee: An Overview
1099 Subcontractor:
Independence: Subcontractors operate independently. They typically own their equipment, control their schedules, and can work for multiple companies simultaneously.
Tax Obligations: They handle their own taxes, including self-employment tax, and do not receive benefits such as health insurance or retirement plans from the hiring company.
Control and Flexibility: They have significant control over how, when, and where they complete their work, reflecting a high degree of autonomy.
W2 Employee:
Employment Relationship: Employees are under the direct control of the company. They use the company’s equipment, adhere to company schedules, and follow specific instructions.
Tax Withholding: Employers withhold income taxes, Social Security, and Medicare from employees’ wages. Employees may also receive benefits like health insurance, paid time off, and retirement plans.
Company Control: The company exerts considerable control over the work environment, processes, and outcomes.
Why It’s Difficult to Classify Movers as 1099 Subcontractors
In the moving industry, especially under conditions where the company owns the trucks, provides uniforms, and assigns schedules, it becomes almost impossible to justify classifying workers as 1099 subcontractors.
Here’s why:
🚚 Ownership of Equipment
Company-Owned Trucks: When a company owns the trucks, it implies significant control over the means of performing the job. Subcontractors typically provide their own equipment. This ownership alone leans heavily towards an employer-employee relationship.
👕 Provision of Uniforms
Company Uniforms: Providing uniforms is another indicator of control, as it suggests the company wants to present a certain image and maintain a consistent brand. Independent contractors usually supply their own attire and tools necessary for the job.
📅 Control Over Work Schedules:
Assigned Schedules: When a company assigns specific work schedules, it limits the worker’s ability to control their own time, a fundamental aspect of being an independent contractor. Employees, on the other hand, are expected to adhere to the schedules set by their employers.
Legal Standards and Compliance
The IRS and various state laws, including California's AB5 law, provide strict guidelines for classifying workers. The ABC Test is a common method used to determine worker classification. Under this test, a worker is considered an employee unless the employer can demonstrate:
A: The worker is free from the company’s control in performing the work.
B: The work performed is outside the usual course of the company’s business.
C: The worker is engaged in an independently established trade, occupation, or business.
For moving companies:
Control (A): Assigning schedules and providing trucks/uniforms fails this criterion.
Course of Business (B): Movers are integral to the moving business, not outside it.
Independence (C): Movers in this scenario do not typically run independent moving businesses.
Risks of Misclassification
Misclassifying employees as 1099 subcontractors can result in severe legal and financial consequences:
Back Taxes and Penalties: Companies may be liable for unpaid taxes, penalties, and interest.
Lawsuits and Fines: Workers may sue for benefits, wages, and protections they were denied.
Reputational Damage: Misclassification can harm a company’s reputation, affecting customer trust and business relationships.
Conclusion
Classifying workers correctly in the moving industry is not just a matter of legal compliance but also one of fair labor practices.
When a moving company owns the trucks, provides uniforms, and assigns schedules, it aligns more with the characteristics of a W2 employee rather than a 1099 subcontractor.
Ensuring proper classification protects both the workers and the company, fostering a fair and transparent working environment.
For moving companies, it's imperative to understand these distinctions and structure their operations accordingly to avoid misclassification and its associated risks.
