Last month, Uber did something really huge that is going to affect the events industry. No, it wasn’t their self-driving car. It was actually something they don’t care to advertise: 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 remember: always seek the advice of your attorney, payroll expert, and CPA.
1099 VS W-2
Unless you own your own company, paying your employees or staff as 1099 versus W-2 is a really big deal. If you don’t classify and pay your employees the right way, you could get slapped with huge fees and back taxes by the government.
1099 is used when you pay a vendor; someone outside of your company who has their own company. They do the work without taking direction from you and on their own time. 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 that as an employer, you aren’t responsible for paying benefits or overtime for them, so they can typically work more than 40 hours. To get a vendor up and running, you just need an invoice and W-9 from them 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 and provide them tools. Unless they are part time, they 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.
How Endless Events Did It Differently
Endless Events decided to do things a bit differently. We took inspiration from EventPro Strategies, who pioneered switching all of their 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; no 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 fast, leaving zero room for profit. So the companies doing it the legal way need to charge at least $20 to make a profit on that transaction.
Endless Events decided to hire W-2 employees and worked exclusively for us rather than hiring 1099 contracted labor. This meant that all Endless employees are living and breathing our culture.
Uber’s $100m Settlement
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. The judge, however, did not agree. They ordered Uber to pay out a $100m settlement for drivers on the same day they announced the driverless car.
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 Uber’s $100m settlement deal saying it wasn’t enough.
So what does this have to do with the events industry?
Like Uber, many event companies can 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 laws could start being put in place to hurt employers who try to sidestep these laws.
The IRS has already been cracking down on businesses that 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 government is currently missing out on.
As this desire to crack down on those who are misclassifying their employees grows, it won’t be long before the IRS realizes the gold mine that the event industry represents. 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.
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 companies? When a company’s employees are all 1099, they could be overworked and not getting the overtime pay and benefits they deserve. As an event planner, you should demand to work with a company that values their employees. 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 their employees. Companies who hire their employees as W-2s have better relationships with their employees. Instead of treating your employees as a transaction, you can start integrating them into your culture.