Tax Strategies for the Rising ‘Gig Economy’

Today we will take a look at tax strategies for the rising ‘gig economy’ – the new business reality in which the traditional employer-employee relationship has broken down.

Tax Strategies and the Surge of Independent Contractors

The “gig economy” is an economic environment in which temporary employment positions are commonplace and organizations negotiate with independent workers for short-term agreements. Growing sectors of the gig economy include car ride services, grocery shopping and delivery, hotel room accommodation alternatives, personal training, and handyman services, among others.

A study by Intuit predicted that by 2020, 40 percent of American workers would be independent contractors. The increasing demand for jobs that offer flexibility and quick income and from consumers who want convenient, on-demand services has sparked new businesses that have disrupted the traditional employer-employee relationship.

The rise of independent contractors in the American workforce has caused many disputes over how workers should be classified and compensated and how the organizations who employ them should be taxed and regulated. Regulators are not caught up with the many legal issues cropping up, and the gray area leaves more questions than answers.

The central question of whether workers who accept on-demand jobs are employees, independent contractors, or something between the two, has afflicted the gig industry with plenty of legal disputes over issues like labor laws, wage and hour laws, anti-discrimination laws, healthcare implications and tax implications.

Some startups have chosen to classify workers as employees to avoid litigation, while others have battled a barrage of lawsuits to classify workers as independent contractors. Looking forward, businesses’ tax strategies will have to take into account a number of factors.

Implications for the Future

Many onlookers and industry insiders expect incoming cabinet appointees to take a favorable position toward companies who rely on the existence of the gig economy. For example, Uber and Lyft have publicly supported Elaine Chao, the transportation secretary nominee. Chao has stated that current labor laws, designed before the gig model rose to prominence, need to be adapted to fit the 21st century. Likewise, labor secretary nominee Andy Puzder is anti-regulation and pro-entrepreneurship and will not lead any charge to classify gig economy workers as employees.

Regardless, the battle between on-demand businesses and class-action attorneys isn’t likely to die down anytime soon. The federal government and state governments are each free to make their own regulations on how employees and organizations are classified. The Equal Opportunity Employment Commission has also entered the fray, so stay on the lookout for new developments that affect the tax code and the future of the gig economy.

Tax Strategies and Tax Preparation with Cohen & Burnett

For over 25 years, Cohen & Burnett has provided Washington, DC area residents with Tax Strategies, Tax Preparation, and Estate Planning and Implementation. To learn more about how we can help you this tax season, visit our homepage today!

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