INGCO International provides translation, interpreting and other language services for companies and organizations worldwide.
The company has 17 full-time staff in the Twin Cities who are project managers, account managers, sales and billing. But the interpreters – more than 2,000 around the world – are project-based independent contractors with whom founder Ingrid Christensen has built relationships around the world.
“They are highly trained professionals,” she said. “They take projects. It’s truly project based. They say no to what they want to.”
It’s a model that has worked well for the growing company, but it’s also a model under some scrutiny now as the state of Minnesota and the federal government evaluate the line between whether workers should be classified as employees or independent contractors.
Christensen is pretty sure she has everyone classified correctly – at least under current laws – but she is one of many small business owners in Minnesota keeping an eye on this issue.
What is the issue?
At issue, more than anything, is the well-founded desire of state and federal governments to eliminate blatant abuse in worker classifications. When employers intentionally misclassify workers as independent contractors, they receive no benefits, pay extra taxes and have less job security.
The issue gained notoriety in recent years as Uber drivers in California challenged laws classifying them as independent contractors.
The Minnesota Attorney General’s office created in September the Advisory Task Force on Worker Misclassification, which has been meeting regularly, studying existing laws both here and elsewhere and hearing from workers affected by worker classification laws.
“Misclassifying workers hurts not only those who are misclassified and their families, it hurts all Minnesotans, including businesses who do the right thing by their employees by playing by the rules and every Minnesota taxpayer who has to make up the slack for law breaking employers,” Attorney General Keith Ellison said in creating the task force.
Unintended consequences
Small business owners such as Christensen, who regularly use independent contractors, agreed with the idea of cleaning up intentional abuse of worker classifications.
“The other concern is some pretty legitimate worker abuse and wage theft and some unfortunate things that have affected mostly migrant and immigrant workers,” she said. “Some of that stuff is legitimate. But that doesn’t mean, in my opinion, that there should be sweeping legislation changes.”
Nat Case, who does publication design, cartography and visual editing, and his wife Ingrid Case, who is a writer, editor and researcher, have both freelanced for more than 20 years. They jointly formed INCase LLC to offer their services nearly 11 years ago.
“We’ve consciously decided to keep ourselves a small company,” he said. “That’s what we want to do, it’s how we want to structure our business.”
They are concerned that lawmakers will use this as a way to tamp down “gig workers’” ability to maintain their status as independent contractors and, thus, significantly affect their way of life.
A California bill passed in 2020 required the application of a three-pronged test to determine whether workers were employees or independent contractors. The bill, Case says, has come with unintended consequences.
Additionally, a Biden administration regulation announced in January was inspired by parts of the California law. It institutes rules requiring the consideration of various factors, such as how much control the hiring company has over work, whether it’s essential to a company’s business and whether the worker has made independent investments and could make a profit or suffer a loss, in determining a worker’s proper classification.
The Cases started a company in order to make clear their intention to go after multiple clients and do their creative work on their own versus for a single employer. But in the wake of these changes and the scrutiny stemming from them, he says they already are seeing a change in how they are treated by some potential clients.
“Both my wife and I have had encounters with large media companies that have started getting really leery about hiring small freelance companies,” Nat Case said. “One of them sent a detailed questionnaire every time there was a new job saying ‘OK, you’re sure you are working for other people and you do a variety of work’ and, basically, checking down the list every time. This is like every month, every couple of months.”
Chamber weighs in
Lauryn Schothorst, director, workplace management and workforce development policy at the Minnesota Chamber of Commerce, says any company that works with independent contractors should be paying attention to this issue.
According to Schothorst, chamber officials have concerns that the Minnesota task force discussions will lead to significant efforts to regulate and rewrite state laws related to contractor classifications, “instead of clarifying existing law and providing resources to get at the misclassification,” adding that there also seems to be a lack of understanding of why someone would rather be a contractor than an employee.
“For folks that go through the process and have registered themselves and pay their quarterly taxes, it’s a bit mind boggling to see why the state thinks there is a problem,” Schothorst said.
The chamber believes the state has some of the strongest worker protection laws in the country and should focus on enforcing those rules. One thing that would help, she adds, is clarifying jurisdiction.
Nathan Panning, a tax principal with the accounting firm BGM, agrees that it’s a big deal that small business owners should be monitoring. Several states, including Minnesota, have been focusing on it. And, with employee paid family and medical leave kicking in a couple years from now, he says Minnesota will be focusing on this, saying, “Hey, is this really an employee or is this an independent contractor? If it’s an employee, you’ve got to be paying into this system.”
At this point the state hasn’t been changing the standards. It’s more about ensuring from an employer standpoint that employers are making the necessary social security and Medicare payments associated with those who should be classified as employees.
And while Panning says there are more companies that are uninformed than there are those intentionally misclassifying employees as contractors, he adds that it’s on the employer, not the employee, to know the difference.
“If a company hires you and they pretty much control your schedule, you use all the company’s equipment, you need to do it the way the company wants the work done, then 99% of the time you’re an employee,” Panning said. “The independent contractor can do it on their schedule. And if the company doesn’t like the result, then it has to be fixed, otherwise they don’t get paid.”
Audited companies found to have misclassified employees face significant penalties. Just federally that means repaying all the employer portions of taxes that had been paid by employees and a portion of the employee contribution. There are also interest and penalty costs.
“That’s just the tax piece,” Panning said. “If there’s a class action lawsuit by these independent contractors saying we’re employees, we deserve the benefits, then it’s even more because you get into the court system.”
Being proactive
So, as small business owners monitor the potential for change, some, like Christensen, are being proactive. She recently rewrote terms and conditions in her contracts to be crystal clear about how her more than 2,000 contractors are project based and independent.
“We have to get everybody’s signature on these terms and conditions before they can accept work,” she said.
She’s also recommending to them that they file the paperwork to start corporations, so their transactions will be business-to-business.
“We’re urging our linguists to just form an S-Corp or an LLC,” Christensen said. “We’re sending them the link and saying ‘Hey, we highly recommend you form your own business so you can continue to provide services.’”
Panning says that’s not a bad idea. “That is definitely another layer that can be added because if a company is paying an individual and it is going to their social security number, that could be highly scrutinized,” he said. “If they can provide that I work for this company, I do gigs for this company, as well, doing this translation work,’ that should be fine.”
