Contractors, cross-border, and the compliance that attaches

Graduate · enrolled learners

This lesson opens with Uber and driver misclassification, 2021 and 2022.

What happened

Uber paid its drivers as independent contractors, not employees, which is cheaper and simpler: no minimum wage guarantee, no holiday pay, no employer payroll taxes and benefits. Regulators and courts looked past the label to the reality of the relationship, how much control Uber had over the work, and reached the opposite conclusion. In February 2021 the UK Supreme Court ruled unanimously that Uber drivers were workers entitled to minimum wage and holiday pay, not self-employed contractors. In New Jersey, the labor department audited Uber and its subsidiary Rasier over 2014 to 2018 and found the drivers improperly classified; because the companies did not share complete payroll records, it originally assessed them a combined 523 million dollars in past-due unemployment, temporary disability and workforce development contributions plus up to 119 million in penalties and interest, figures the state itself calls rough estimates based on incomplete data. In September 2022, with more complete records, the companies paid a revised assessment of 100 million dollars covering 297,866 drivers. The liability attached retroactively, for years of payments already made under the wrong classification, and multiplied across every driver. Uber had not paid contractors incorrectly in a mechanical sense; it had called them contractors when the law, reading the substance, said they were not, and the compliance obligations of the real relationship attached anyway, with the bill for the years in between.

The decision point

When a business pays someone as a contractor, it is making a legal claim about the relationship, and that claim is not settled by the label on the invoice or the contract; it is settled by the reality of how the work is directed and controlled. Get the classification wrong, call someone a contractor who is in substance an employee, and the compliance that attaches to the real relationship, minimum wage, benefits, holiday pay, employer taxes, applies anyway, retroactively, for every payment already made and every worker involved. Uber is the case where that retroactive liability ran to 100 million dollars in a single US state because the misclassification was multiplied across a workforce and across years. Paying contractors, especially across borders, therefore carries a compliance surface the payment itself hides: worker classification in each jurisdiction, tax withholding and reporting, local labor law, and, for cross-border payees, sanctions and identity screening on who is actually being paid. So the decision when paying contractors is to treat the classification and the attached obligations as part of the payment, verified against the reality of the relationship and the law of each jurisdiction, because the label is cheap and the liability is not, and it attaches to the substance whether or not the business acknowledged it.

Recorded loss

$100,000,000

Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.

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