Many businesses that hire temporary staffing have been won over by the very attractive pricing of 1099 gig staffing platforms.

However, with lawsuits piling up and the Department of Labor’s new ruling that went into effect on March 11, 2024, the same companies are quickly turning away from gig staffing platforms offering workers classified as independent contractors (1099).

Here’s what a hiring manager should know about working with 1099 gig staffing platforms and the risks involved.

1099 gig staffing platforms are facing ongoing legal issues—and it’s only getting worse

Some gig staffing platforms providing hourly workers choose to classify their employees as independent 1099 contractors to save on costs related to worker protections and benefits and to reduce their own burden as employers.

Now they’re facing scrutiny from legal authorities in many jurisdictions, with more states and municipalities bringing their own legal cases:

New DOL Rule seeking “to combat employee misclassification” went into effect on March 11th, 2024

The “war on wage theft” and worker misclassification is driven by the current administration’s initiative to protect workers’ rights, by both expanding and enforcing them.

While the US Department of Labor’s final rule went into effect in March, more and more states are cracking down on businesses that don’t comply with these regulations.

“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections”

Julie Su, Acting Secretary of Labor

Can your business be liable, too?

Many executives are wondering if hiring misclassified workers through partnerships with 1099 gig staffing platforms puts them at risk.

“The businesses contracting for staffed labor often assume that the staffing agency is following the law and will take responsibility for any liability related to the workers they place. Unfortunately, all too often, this is not the case. 

For example, the DOL recently sued a healthcare management business for a staggering $19 million allegedly owed in back wages as a result of unpaid overtime to workers the company obtained from a staffing agency that failed to pay the overtime.“

Angelo Spinola, employment litigator, Polsinelli Source: The National Law Review: Misclassification Concerns in Staffing Relationships

More information about potential fines and criminal penalties

BloombergTax.com: Employee Misclassification Too Big to Ignore

1099 gig staffing platforms are cutting corners to offer lower markups, but workers pay the price

While lower prices are very tempting, many businesses started questioning how 1099 gig staffing platforms could afford such low markups.

“It sounds horrible considering a 1099 guy can cut their finger off and not be covered under work comp!”

- Flexible Worker (source: Reddit.com)

“$15 an hour is essentially like making $10 an hour after you pay all your expenses as an INDEPENDENT CONTRACTOR”

- Flexible Worker (source: Reddit.com)

The main “perks” of classifying workers as 1099 independent contractors are financial. Gig staffing platforms have the ability to avoid paying for:

  • taxes
  • unemployment insurance
  • protections like workers’ comp
  • benefits like healthcare

“[gig staffing platform] uses convenience and flexibility to mask its decision to deny workers their rights.

[...] If this illegal business model is allowed to take hold, hundreds of thousands of positions in the food and beverage industry risk illegal misclassification, and hospitality workers will be pushed into poverty."

David Chiu, San Francisco City Attorney

Source: San Fransisco is suing a hospitality staffing firm for allegedly denying workers guaranteed wages, benefits

More and more businesses are turning away from 1099 providers in haste

If it seems too good to be true, it usually is.

1099 gig staffing platforms won over businesses with affordable pricing and low markups and bill rates.

However, in the light of increased scrutiny and more lawsuits and scandals coming out all over the country, the same businesses are choosing not to accept the liability risks or sacrifice their ethics anymore.

“You can’t be a dishwasher in a restaurant and be an independent contractor. That defies logic.”

Timothy O’Brien, Denver Auditor

“[...] Workers have been unjustly treated as independent contractors, stripped of their right to healthcare, paid leave and unemployment insurance”

George Gascón, Los Angeles County District Attorney

What’s the alternative?
A fair and compliant W2 staffing partner

Since opening in 2016, Upshift has always been a W-2 staffing provider offering:

  • a correctly-classified workforce that is compliant with all laws
  • full employee rights and protections including workers’ comp and unemployment

Protected
workforce

Fully W2 compliant
since day 1

No liability for
businesses

Contact Us to Learn More