Over the past few decades, employers have increasingly made changes to the structure of their workforce. For example, employers have outsourced work previously performed by full-time employees. This work has been tasked to independent contractors, leased workers, temporary workers, and part-time or on-call workers. Collectively, these workers are referred to as contingent workers. The change is significant because employees are eligible for many rights and benefits that contingent workers are not.
The increase in the number of independent contractors has contributed to lower job quality for many workers. This has led to a decrease in workers’ financial resilience. A wide range of policymakers and experts have called for a better safety net for the contingent workforce. Protections and benefits available only to employees could be extended to contingent workers. Or new arrangements, such as portable benefits, could be created.
In recent years, contingent work arrangements have expanded to a new arena: online or mobile platforms that furnish workers to perform tasks for customers. This is known as the gig or sharing economy. Online gig work can provide earning opportunities for workers of all ages. It is useful when people are unable to secure more traditional employment or desire more flexibility. It also aids workers seeking to supplement retirement income or savings.
However, online gig work can also be used by companies to exploit and misclassify workers. U.S. labor and employment laws have long rested on a distinction between employees and independent contractors. Laws define the difference in varying ways. In general, workers are employees if they carry out the mission of the business, and the employer controls not only what work is done but also how it is done and the terms and working conditions of the arrangement. Independent contractors are workers who are in business for themselves. They provide services unrelated or incidental to the mission of the business. In addition, independent contractors experience the profits or losses of the business.
The classification of workers is critical because of the legal rights and benefits given to employees. These are spelled out in the Fair Labor Standards Act. Employees are entitled to the minimum wage, paid overtime, occupational health and safety standards, civil rights, and the right to organize. Employees also are legally entitled to certain benefits. These include splitting the cost of Social Security and Medicare payroll taxes with the employer and having income taxes withheld from their paychecks. They may have the right to unpaid family and medical leave. In addition, they may have access to other benefits such as vacation and sick leave, health insurance, and retirement savings plans.
Misclassification hurts workers by denying them employment protections and benefits. It also puts employers who play by the rules at a competitive disadvantage.
The classification of contingent workers is the subject of debate and litigation. Some have suggested that the gig or sharing economy warrants the creation of a new, third category to classify workers. Others have asserted that the use of digital platforms such as an app does not change the fundamental nature of the underlying employment relationship. Adding a third category would not necessarily bring clarity. It could instead make classification more difficult to parse and further degrade labor standards.
Still others have suggested that gig economy companies be given special treatment. The companies could be temporarily exempt from complying with employment laws related to worker classification in order for them to develop their business models further. The notion is that strict enforcement of employment laws can impede innovation. But providing temporary moratoria or safe harbors circumvents examination of workers’ proper classification. This potentially denies some workers the benefits and protections they would be entitled to if they were classified as employees rather than independent contractors.
Part-time work is important for some workers, particularly those with caregiving responsibilities. People who work part-time face two disadvantages. First, they tend to earn less than full-time workers on a per-hour basis, even after accounting for differences in demographic characteristics, industry, and occupation. Second, some employers exclude them from employment benefits such as health insurance and retirement savings accounts. Older workers are more likely to work part-time, and women are more likely to work part-time at all ages.
CONTINGENT WORKERS AND ALTERNATIVE WORK ARRANGEMENTS: Policy
CONTINGENT WORKERS AND ALTERNATIVE WORK ARRANGEMENTS: Policy
Employment protections and benefits
All workers should have access to both employment protections and some benefits such as health and retirement. This includes those properly classified as independent contractors and those with part-time status.
Protections and benefits should be adapted appropriately for the worker’s circumstances. They could build on existing public and private systems.
Employment protections and benefits should be portable, structured to pool risk where appropriate, and take advantage of economies of scale.
Contingent and part-time workers who are virtually indistinguishable from regular employees—in characteristics such as work location, hours worked, work performed, employer expectations, and supervision—should be protected by employment laws.
Federal, state, and local policymakers should ensure the proper classification of workers. Those who should have access to employee protections and benefits should receive them.
More states should adopt innovations and step up their enforcement and prosecution of employers that misclassify workers as independent contractors.
Congress should ensure that the Department of Labor has adequate resources for enforcement of the Fair Labor Standards Act, particularly its provisions dealing with the classification of workers.
A new classification category for workers in response to the sharing economy is not needed. Policy innovation should focus on improving access to important benefits and protections, including social insurance protections, for all contingent workers.
Congress should narrow the safe harbor loophole that permits misclassification of employees. Misclassification should be made an express violation of the wage and hour laws. Sufficient funds should be appropriated to the Department of Labor and the Internal Revenue Service (IRS) to enforce labor laws.
Bans, including temporary ones, on the regulation of companies in the online gig economy (such as Uber) or the application of existing employment laws to their practices are not warranted.
Congress should provide funding for the Bureau of Labor Statistics to collect sufficient data about contingent work and alternative work arrangements. This would allow for a comprehensive understanding of the workers in these arrangements.
Policymakers should commit resources to improve the information available regarding contingent work and alternative work arrangements and capture the complexities of work arrangements as they evolve.
Congress and state legislatures should require employers that provide benefits to regular, full-time employees to extend them to part-time employees on a prorated basis.
Employers should be required to disclose to workers when they are being hired as independent contractors. They should provide a clear explanation of what that means.
Policymakers should take steps to assist with tax compliance by independent contractors and other contingent workers.
Such steps could include increasing awareness of the tax filing obligations and process, including self-employment taxes, making the withholding of income taxes and payment of Social Security and Medicare contributions automatic, and stronger IRS reporting requirements for companies that use independent contractors.