Handy is a startup that allows people to order handymen and house cleaners on demand. Like many similar companies, many of those who do the actual work for Handy aren't technically employees—instead, they're "independent contractors" and thus ineligible for benefits. This distinction doesn't sit well with two of Handy's workers, who have filed a class-action lawsuit alleging that the company misclassifies workers as "independent contractors" in a bid to save money.
Handy is hardly alone when it comes to that charge. In June, an attorney in Suffolk County, Massachusetts, sued the transportation startup Uber—which, like Handy, classifies its workers as independent contractors—for keeping some of the tip income drivers received directly from customers. And in August, the Ninth Circuit Court of Appeals ruled that Federal Express wrongly grouped 2,300 of its FedEx Ground workers as contractors rather than employees.
The difference between independent contractors and employees is more than just semantic. Unlike employees, independent contractors do not receive benefits like overtime, health care, unemployment insurance, or paid time off. In exchange, contractors are freed from obligations to their employer that regular, salaried employees must obey.
To keep employers from abusing the distinction, the IRS has established regulations determining whether workers are employees or contractors. Here are a few guidelines:
For instance, an employer-employee relationship is more likely to exist where the business dictates and controls the following:
- When and where the worker performs his or her work.
- What tools or equipment the worker should use to perform the work.
- Where to purchase supplies and services.
- What assistants to hire to help perform the work.
- What work must be performed by a specified individual.
- What order or sequence should be followed in performing the work.
- What training the business gives to the worker, especially if the worker is trained to perform their work in a manner chosen by the business.
The plaintiffs in the Handy suit contend that the company placed requirements on workers that would characterize an employer-employee relationship. Handy workers are required to wear uniforms and must obey rules regarding when they're allowed to use the bathroom, make or accept phone calls, or even whether to knock or ring the doorbell when visiting a client's home.
Handy disputes the claims brought up in a lawsuit.* Nick Rosen-Wachs, a company spokesman, released the following statement:
Professionals who use the Handy platform to book jobs are independent contractors, not Handy employees. They choose the Handy platform because it provides much needed flexibility by allowing them to book whatever jobs best suit them. Moreover, on average, professionals earn more than $18 an hour for each job booked on the platform, far above minimum wage. The lawsuits filed by Vilma & Greta Zenelaj, as well as Lulu Malone, are without merit and we intend to defend them vigorously.
Other companies under criticism for hiring "independent contractors" rather than employees have defended the practice. Uber claims that its drivers can earn up to $90,000 annually in New York City, while FedEx even claims its workers are, essentially, entrepreneurs in business for themselves.
But critics say that these claims are disingenuous, at best. Instead, companies like Handy simply want to transfer the cost of running a business from ownership to the workers.
As one independent contractor who works for a major Amazon supplier put it, "It's like they want us to be employees, but they don't want to pay for it."
* This post has been updated to include comments by Handy spokesman Nick Rosen-Wachs.