According to Wikipedia, a black market is: "a market where all commerce is conducted without regard to taxation, law or regulations of trade". How is this related to Mechanical Turk?
Today, I received an email, asking about the tax and employment issues regarding Amazon Mechanical Turk. What are the rules about posting tasks on Mechanical Turk? How should these tasks be handled by accounting and human resources departments?
Unfortunately, Amazon did not design Mechanical Turk in a requester-friendly way. In an effort to relieve their accounting and HR department from a big overhead, Amazon transferred to the requesters the risk of violating the US Tax Code and engaging into illegal employment activities.
How can this happen? The key issue is whether there is an employer-employee relationship between the requesters and the workers on Mechanical Turk. The crucial question is:
When you submit funds to your Mechanical Turk account, who are you paying? Amazon.com or the worker?
If it is Amazon, then you are simply letting Amazon deal with all the tax and employment issues associated with the worker: Amazon needs to verify that the worker is eligible for employment, takes care of tax issues, and so on. In this case, hiring someone for a micro-task on Amazon is the same as getting an agency to provide cleaning services to your home: you do not need to care if the person coming to clean your place is eligible for employment, whether the taxes are properly withheld from the paycheck and so on. It is the agency's task to take care of that.
However, Amazon does not follow this route. According to the terms and conditions, paragraph 6.a:
In addition to the disclosures described in our Privacy Notice, we will disclose to Requesters [....] Provider Tax Information. "Provider Tax Information" means tax identification information of Providers, such as a Social Security Number or Employer Identification Number. Requesters use Provider Tax Information to fill out an IRS Form 1099 and send it to Providers. If you are a Requester and want Provider Tax Information from us to complete IRS Form 1099s for Providers you have paid, you must provide us with your company name and employer identification number ("Requester Tax Information"). You hereby consent to disclosure of Provider Tax Information, Requester Tax Information, and other data as described in this Section 6 and our Privacy Notice.
This provision is there because a requester that paid a worker more than 600USD per year, is required to submit 1099-MISC tax forms to these workers. In other words, this tiny provision means that the employer-employee relationship is not between Amazon and the worker but between the requester and the worker. This is in contrast to other marketplaces (e.g., Rent-A-Coder), where the requester pays the marketplace provider, and then the marketplace provider contracts individually the workers, taking care of tax issues, issues of employment authorization and so on.
What are the implications of this policy?
- Requesters may be open to the risk of violating employment laws. It is possible that a requester is illegally employing US-based workers that do not have the right to work in the US.
- Requesters may be open to the risk of violating the US tax code. The requester needs to keep track of how much they paid each individual worker (out of potentially thousands of workers), and send 1099-MISC tax forms to the workers that did more than 600USD worth of HITs over the year for the requester.
OK, these are the risks. What are the potential counter arguments and how can somene avoid these issues?
The employment-eligibility issue: Amazon pays in cash only people that have US bank accounts. This means that the person, if US-based, is legally in the US. I do not know if Amazon checks for employment eligibility (they should). If the person is not US-based, then Amazon pays through gift cards: From what I know, gift cards are not considered compensation, as we regularly give gift cards as awards to students, without worrying about their eligibility to work, and our accounting department never worried about this practice. So, the issue of illegal employment seems to be rather controlled but it would be nice if Amazon took explictly care of that. Yes, it is a big headache for the HR department of Amazon to handle thousands of micro-contractors, but this is the price to pay for running this service.
The tax issue: At the very least, Amazon should have an automatic service to take care of this issue rather than leaving requesters scramble to track all the micro-payments and send the paperwork. It is trivial: If a given requester-worker pair generated more than 600USD worth of HITs over the year, request tax information and send the 1099-MISC forms on their behalf.
A better solution: Request tax and employment-eligibility information from workers BEFORE they can work on the MTurk marketplace. Also, request tax information from all the requesters BEFORE they can post any tasks on MTurk. Then submit the tax forms automatically at the end of the year.
An even better solution: Adopt the Rent-A-Coder model, and consider the MTurk workers as Amazon contractors. Then requesters buy services from Amazon, in the same way they buy computing power on EC2, storage on S3, and so on. In this case, it is very simple to add the MTurk expense under the "software services" line in the accounting report.