A California Senator is urging the state’s Labor and Workforce Development Agency to conduct an investigation into the business practices of fintech turned HR startup Deel.
Last week, Senator Steve Padilla (D-San Diego) sent a letter to Stewart Knox, California Secretary of Labor, alleging that Deel has hired hundreds of employees but classified them as independent contractors. By doing so, Senator Padilla charged, Deel is “effectively denying them the full suite of employment and social safety net benefits and labor protections they are entitled to, including healthcare, retirement, unemployment insurance, worker’s compensation, collective bargaining, and overtime pay.”
Further, Senator Padilla claimed that Deel “appears” to be advising its own customers (which include the likes of Nike, Subway, Reebok, Forever 21 and Klarna) “to misclassify their own employees and evade taxes in California,” as well as avoid paying employee benefits. Earlier this month, according to Padilla, Deel CEO Alex Bouaziz encouraged companies to leverage “the different ways of employing someone or assigning them as an independent contractor…..and therefore don’t put as much tax liability into your company.” He also encouraged companies to “spend some time on this topic” and offered to provide this as a service, stating “we can do that for you.”
TechCrunch reached out to Deel for comment and Elisabeth Diana, a company spokesperson, provided the following statement:
“These allegations are completely made up and regurgitated from old news, most likely based on competitor hearsay. Compliance is literally what we do, in over 120 countries. We have to understand it for our customers, and we certainly practice it ourselves. Today we have over 50 compliance experts in house and an external network of country advisors. To advise clients on how to misclassify their workers would be at complete odds with our business model. We’ve also created a consortium with external academics called the Deel Lab for Global Employment to study and help prevent misclassification practices. In California we engage a handful of contractors for services, and in the US, contractors represent less than 1% of our workforce. Claims of misclassification there are ridiculous. Unfortunately Senator Padilla did not reach out to us for comment or facts prior to publishing his letter. We welcome speaking with him directly to provide factual information.”
The spotlight on Deel’s hiring practices came to light earlier this year when Insider published an article revealing, among other things, that even CEO and co-founder Alex Bouaziz was classified as an independent contractor. According to Senator Padilla, several employees “have reported being shocked to learn they had been hired as long–term contractors despite originally applying as full-time employees, and without the ability to choose.” Senator Padilla’s office told TechCrunch that the politician has asked for an investigation to determine if the practices mentioned in the article are accurate.
Many of the company’s employees, he said, have access to a range of benefits, including unlimited paid-time off, wellness stipends and reimbursements for gym memberships and doctor’s appointments. But, Senator Padilla alleged, they “continue to be denied the full suite of employment and social safety net benefits and labor protections they are entitled to, including healthcare, retirement, unemployment insurance, worker’s compensation, collective bargaining, and overtime pay, among others.”
“No company is above the law. Deel has been openly flaunting their violation of California labor laws, intentionally misclassifying their employees as independent contractors and denying them critical benefits,” said Senator Padilla in a press release. “California is clear on this issue; employees are entitled to benefits and protections. Corporations engaging in malicious employment schemes like this need to be held accountable and these employees need to see their rights restored.”
In January, TechCrunch reported that Deel had reached $295 million in annual recurring revenue (ARR) by the end of 2022 and that it was profitable, according to Bouaziz. The startup, which offers global payroll and other services to companies around the world, was valued at $12 billion at the time of its last raise, although its current valuation is not known. It operates with a SaaS business model, meaning that it charges a subscription fee for its software.
Bouaziz and Shuo Wang started remote-first, San Francisco-based Deel in 2019 as an employer of record (EOR) — with the mission of allowing businesses to hire employees and contractors in other countries “in less than five minutes.” Deel also says that it gives companies the ability to pay teams in more than 150 currencies with “just a click.” It has since evolved its strictly fintech model to what it describes as a “full-stack,” “truly global HR platform” designed “to compliantly manage your entire workforce in just one system—from direct employees to international workers and everything in between.” It has more than 2,000 employees in 90 countries.
Senator Dave Cortese (D-San Jose), chair of the Senate Labor, Public Employment and Retirement Committee, stated that an independent contractor is “a specific designation for self-employed people or businesses engaged in contract work.”
He added: “It’s not a gimmick for organizations to avoid paying for employee healthcare and other benefits or reducing their tax liability…Any company found breaking the law will be brought to justice, and they would certainly have no business advising other companies on labor law.”
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