There’s no doubt that there is a rise in “gig employees” worldwide. The greater number of gig employees, also known as independent contractors or freelancers, is due, in large part, to the extensive accessibility of the Internet. The United States Government Accountability Office reports that 12.9% of the workforce in the United States were independent contractors in 2015. This number is predicted to grow. According to a study by Intuit, there will be more than 60 million people in “gig” employment worldwide by 2020. The United States Census Bureau reports growth in independent contractors across all industries.
One of the biggest concerns for gig employees, however, is that the current employment laws, including civil rights acts or wage and hour laws, do not apply to independent contractors or freelancers.
Definition. It’s important to understand that the term “independent contractor” is defined differently among various jurisdictions, such as the IRS rules, Department of Labor’s regulations, States’ Workers’ Compensation laws, States’ unemployment insurance laws, and common law. Therefore, a caution should be taken in applying the same definition of an independent contractor across various jurisdictions, which are similar but not identical. For instance, variances among said laws may cause an “independent contractor” under the IRS rules be deemed an employee under the employment laws.
For example, according to the IRS, as a general rule, an independent contractor is largely defined by whether the payer has the right to control or direct what work will be done, how it will be done, as well as the end result. In the case of an independent contractor, the payer can only control the end-result of the work performed. If the payer dictates how and when the work will be accomplished, the relationship will likely be deemed of an employee. The Department of Labor, on the other hand, has multiple criteria that needs to be considered in each particular case — the right of control is only one criterion among the list of criteria that must be examines on a case by case basis. Such cases are complex and often involve major companies, such as Uber, Netflix and UberEats, which have recently come under scrutiny for their practices of engaging independent contractors to meet core their operational needs.
Do current employment laws cover independent contractors?
Employment Laws. Despite there being more than 180 employment laws, such as Fair Labor Standards Act, the Occupational Health and Safety Act, and the Family Medical Leave Act, most of these do not apply to independent contractors, leaving independent contractors exposed to civil rights abuses, discrimination, harassment, and “wage claims.”
With the increased momentum towards independent contractors and gig employment, therefore, the question is how to effectively protect these independent contractors and freelancers. Seth Harris and Alan Krueger of The Hamilton Project, propose that labor laws need to be modernized for the 21st century and the new wave of independent contractors. They, along with others, suggest a new legal classification of independent contractors that would require companies engaging independent contractors and freelancers to do the following:
- Allow contractors to unionize
- Guarantee them Civil Rights Protections
- Withhold taxes
- Contribute half of FICA (Federal Insurance Contribution Act) taxes
- Contribute to ACA (Affordable Care Act) based earnings
- Allow contractors to pool together for benefits purposes such as health and retirement
The proposal, which is garnering support amongst independent contractors, would not require employers to do the following:
- Pay overtime
- Adhere to minimum wage laws
- Provide unemployment insurance
- Provide worker’s compensation benefits
Obviously, the implementation of above proposals would undermine the independent contractors’ appeal for businesses. Moreover, given the current political climate in Washington, it is highly unlikely that any of these proposals would be passed by the Congress anytime soon.
Nevertheless, businesses that choose to utilize independent contractors, must be sure that they are treating their independent contractors as just that. Regardless of the political environment in Washington, both Federal and State agencies and courts have been very skeptical of the businesses engaging independent contractors to meet their day-to-day operational needs.
This article is intended to serve as a general summary of the issues outlined therein. While this article may include general guidance, it is not intended as, nor is it a substitute for, a qualified legal advice. Your receipt of this article from Lexern Law Group, Ltd. (the “LLG”) or any of its attorneys does not create an attorney-client relationship between you and the LLG. The opinions expressed in this articles are those of the authors of the article and does not reflect the opinion of the LLG.