Keep Truckin’ Inc.
Keep Truckin’ Inc.
Memorandum#1
To: You, Director of Human Resources, Keep Truckin’
From: Phil Miles, Chief Executive Officer, Keep Truckin’
Re: Classification of Drivers
Date: January 19, 2017
The memo covers the issues correlated with the classification of Keep Truckin’ Inc. workers as either employees or independent contractors. The memo will examine the difference in treatment of employees or independent contractors. It will also review the factors determining worker status as set forth by the court under economic realities test. The memo will also throw some light on the issue of unpaid interns.
When the worker is classified as an employee, the employer is required to deduct the employee share of social security, Medicare taxes and usually income taxes from the employee’s pay. The employer is also required to pay employer share of social security and Medicare taxes along with unemployment taxes. The employer must report employee’s earnings and tax withholding on form W-2 for the calendar year. The employer also must pay taxes due at certain frequency based on the tax liability of the unit as whole. The employer is accountable to other legal requirements related to worker’s compensation, overtime (wage and hour law) and antidiscrimination law. The employees may also be qualified for coverage under various benefits programs proposed by the employer.
When a worker is classified as an independent contractor, the contracting organization is not required to deduct income, social security and Medicare taxes or pay employer share of social security and Medicare taxes. The employer is not responsible for unemployment taxes. The contracting organization reports earning on the Form-1099. Also, the contracting organization is not responsible for worker’s compensation, wage and hour laws and antidiscrimination laws.
To Keep Truckin’ Inc., it may first appear that there is a significant savings in classifying workers as independent contractors instead of employees. However, courts can challenge this treatment and overrule that the worker was an employee and income, social security and Medicare taxes should have been held back and paid on the worker. The status of the worker is not decided because of convenience or cost savings of the employer. Instead the decision is based on implementing test and factors cited in the case law to the facts and circumstances of job. The presence of written compliance between Keep Truckin’ Inc and an independent contractor has no acceptation in support of independent worker status. If the Keep Truckin’ it loses the test to the classification of a worker as an independent contractor, the Pennsylvania court may assess back taxes, penalties and interest totaling and amount greater than what otherwise would have been due if the worker had been treated as employee.
IRAC Test
The Keep Truckin’ Inc. must consider all the facts and circumstances that will help in deciding whether the worker is the independent contractor or an employee. The facts can be divided mainly into three categories: -
- Whether Keep Truckin’ Inc. has right to control worker behavior.
- Whether Keep Truckin’ Inc. has financial control over the worker.
- The relationship between Keep Truckin’ Inc. and the worker.
This case can be considered by applying IRAC as follows: -
Issue: - What kind of worker should a Keep Truckin’ Inc. driver considered as?
Rule: - The applicable rules of law that court uses to make decision like this would simply analyze the official difference between the two titles. The employees are entitled to more benefits and protections as compared to the independent contractor. For example, the employees are entitled to the wage and hour law, antidiscrimination law, payroll withholding, Medicare taxes, worker compensation benefits and unemployment benefits. If the employer misclassifies the worker as an independent contractor, he would be depriving the employee of these benefits. Further the misclassification of the worker can lead to federal liabilities including monitory penalties as well as civil and criminal sanctions.
Analyze: - The economic realities test laid out a seven-factors test in determining in if a worker for Keep Truckin’ Inc is an employee or an independent contractor.
1. Degree of Control – The keep Truckin’ Inc has to make sure that they exercise minimum amount of control on the drivers they hire as the independent contractors. The drivers are just responsible to collect the packages from the FedXPS distribution center and distribute it to the end customers located within Pennsylvania on time.
2. Investment in the facilities – The company should make sure all the equipment that is, transport to carry packages, tools for repair and mobile phone is not provided to the drivers. The drivers are themselves responsible to carry all this equipment. Also, any tools or equipment will not be provided on rent by Keep Truckin’ Inc.