Last month, Uber did something really really huge that is going to affect you in the events industry, and no, it wasn’t their self-driving car. It was actually something they don’t care to advertise and it was Uber’s $100m settlement over drivers claiming they are W-2 employees and not 1099 contractors. So you might be wondering, how does this affect me? Keep reading and I will explain Uber’s $100M Settlement.
1099 versus W-2
Unless you own your own company (and believe it or not, some business owners don’t know this), paying your employees or staff as 1099 versus W-2 is a really big deal. So big, that if you don’t classify and pay your employees the right way, if you get caught by the government, you could get slapped which HUGE fees, and back taxes. So what is 1099 and what is W-2?
First off, let me add this disclaimer. I’m not an attorney or a tax expert, but owning a company for 10 years I have to know this stuff, so I know enough to know when it’s being done right or wrong. Always seek the advice of your attorney, payroll expert, and CPA.
1099 is used when you pay a vendor, someone outside of your company who has their own company, who does the work without taking direction from you, and on their own time (though they might have a deadline). They usually wear their own clothing, use their own tools, and usually have a lot of different clients. Most importantly, they are responsible for their own taxes, insurance and other things that most companies are responsible for. This means as an employer, you aren’t responsible for paying benefits for these people nor overtime – so they can typically work more than 40 hours. Typically to get a vendor up and running, you just need an invoice from them and their W-9 and you can start paying them. These are what we call “contractors”.
W-2 is used for an employee. You tell them when you want them to work, what to wear, you provide them tools, and they typically (unless they are part time), ONLY work for you. There is usually a bit more work when it comes to hiring and paying a W-2 employee, but it’s because you are paying taxes and additional portions of their pay to the government. By having a W-2 employee you are allowed to tell them exactly how you want them to work, but, because of this, they have certain rights as well. For example, the security that if they lose their job, they can get assistance from the government; also, if they are paid a certain amount, they are entitled to benefits. Lastly, if they exceed 40 hours in a week, you are required, by law, to pay them overtime. This is a huge protection for employees, keep that one in mind.
Again, I’m not an expert, but I can tell you that most of the events industry is doing this entirely wrong, and it’s highly illegal.
How Endless Did It Different
This is why Endless decided, years ago, we were going to do things a bit differently. We took inspiration from our friends at EventPro Strategies, who pioneered switching all of their thousands of event staff from 1099 to W-2 – something the event marketing and event staffing industry thought was crazy. It was going to be much more expensive for EPS, and, because of that, they would have to charge much more.
For example, if a client hired them for a staff person for $15 per hour, for most of the event staffing industry, they would 1099 the person, and pay them $10/hour and keep $5/hour. Sounds simple right? Here’s the issue, none of these event staff had their own insurance, nor knew that they had to pay their own self-employment taxes on top of that. The US government does not allow that, and because the event staff is taking direction from the event staffing company, they need to be classified as a W-2 employee. EPS pays taxes for each hour worked. So that $10 per hour position turns into $15 per hour in cost, really fast, leaving zero room for profit. So the companies who are doing it the legal way need to charge at least $20 to make profit on that transaction.
Endless decided two things. First, we didn’t want to get in trouble with the government for doing things the wrong way. That’s simple, but, in addition to that, we also made another commitment. Instead of hiring 1099 contracted labor, we were only going to hire employees who were W-2 and worked exclusively for Endless. This meant that all Endless employees were living and breathing our culture, and it wasn’t just another event to them. Sure, in the short term, this means higher costs for us, but in the long term, all it takes is one audit to have the government say “Nope, sorry you’re doing it wrong, and remember all of those taxes you didn’t pay, now you have to pay them”. Yikes! No fun.
So what does this have to do with Uber?
Earlier this year, drivers in California and Massachusetts sued Uber for not hiring them as 1099 contractors, when they were being treated as W-2 employees. The ability to hire drivers as 1099 has been a huge reason why Uber has been able to stay profitable this entire time. Uber claimed it was a technology platform that provided communication between drivers and riders, and therefore, didn’t have to treat people as employees. A judge didn’t think so and said a big NOPE. It ordered Uber to pay out a $100m settlement for drivers on the same day they announced the driverless car. You might think, big deal, right? They pay the settlement and move on, but that’s not it. This isn’t just about the small amount of drivers who sued but now more drivers are going to realize they have power and you can bet there are more lawsuits coming. In June, a judge hinted Uber’s $100m settlement might not be enough and most recently U.S. District Court Judge Edward Chen rejected the settlement deal saying it wasn’t enough. Ouch!
So what does this have to do with the events industry?
So you might be thinking, Uber is a huge technology company, how is it going to affect me? This is a huge deal because similar to many event companies and Uber, a lot of companies are able to profit more by skirting the issue and hiring their employees as 1099 instead of W-2. Depending on where this lands, if it reaches a large enough scale, harsher and harsher laws could start being put in place to hurt employers who try to side step these laws. The IRS has already been cracking down on businesses who misclassify their employees as 1099 contractors. With a large company like Uber being brought into the spotlight, they will more than likely be made an example of in order to reclaim the several billion dollars each year the goverment is currently missing out on.
This affects the events industry more than most because we are an industry that is full of people who started their companies with passion and no startup cash at all. Heck, when I started my first production company, I had no idea what I was doing. It wasn’t until I had an enlighting conversation with EPS that I realized I was doing it all wrong. Fortunately, instead of waiting until I got big, I made the change in the first year of the company. Unfortunately, there are many companies out there who don’t know about this, or are aware but are actively not obeying the law. The AV industry is notorious for this because they have a lot of staff on call just waiting for events and they don’t want to pay taxes for someone who may only work one event.
What this means is that as this desire to crack down on those who are misclassifying their employees grows, and as I mentioned a lot of the event industry is part of that group, it won’t be long before the IRS realizes the gold mine that the event industry represents, and we will see event companies getting in trouble left and right. Once this transition is made, you will see the cost of labor go up across the industry because of the rise in costs to hire labor as W-2 for events. This means the ones who are doing it the right way will be able to stick around, and the ones who don’t.. well, let’s hope they have been saving all of the money they have been making, and that they don’t go out of business before your event.
So what can I do?
As planners, we need to start having the conversation. Sounds like something you shouldn’t have to worry about right? Why do I care how my vendors run their company? When a company’s employees are all 1099, it means the employees could be getting overworked and not getting the overtime pay and benefits they deserve. You, as a planner, should demand to work with a company who is in business to do things the right way. It also means you are going to get a better vendor and better people working your event.
As companies, everyone needs to make the transition to not only doing what is legal, but also what is better for your employees long term. Companies who hire their employees as W-2 have better relationships with their employees. Instead of treating your employees as a transaction, you can start integrating them into your culture. I know a lot of amazing event professionals who are not doing it the right way, and the last thing I want to see are these talented event professionals being slapped around by the IRS.
Together, I hope this post helps illuminate the conversation when it comes to how we pay our employees in the industry and how we, as an industry, rise above doing what is easy and what generates the most amount of profit, and instead build better companies.