Over the past few decades, employers have increasingly changed the structure of their workforce, outsourcingA situation in which a company contracts with a different company to perform some of its internal activities. work previously performed by full-time employees to independent contractors, leased workers, temporary workers, and part-time or on-call workers—collectively referred to as contingent workers. This 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. It also has led to a decrease in worker financial resilience. A wide range of policymakers and experts have called for a better safety net for the contingent workforce, either by extending current protections and benefits to them, creating new arrangements such as portable benefits, or both.
In recent years, contingent workAn employment relationship based on short-term engagements and the absence of the rights and protections available to traditional employees. arrangements have expanded to a new arena, specifically in the “gig” economy in which an online or mobile platform is used to furnish workers to perform tasks for customers. Online gig work can provide earning opportunities for workers of all ages, especially when they are unable to secure more traditional employment, desire more flexibility, or seek to supplement retirement income or savings.
However, online gig work can also be used by companies to exploit and misclassify workers. Our nation’s labor and employment laws have long rested on a distinction between employees and independent contractors, with laws defining the difference in varying ways. The distinction rests on many factors, but in general, workers are employees if they carry out the mission of the business and the employer controls not just what work is done but how it is done, as well as the terms and working conditions of the arrangement. Independent contractors are workers who are in business for themselves, who provide services unrelated or incidental to the mission of the business, and who experience the profits or losses of the business.
The classification of workers is important because of the legal rights and benefits conferred upon employees. Employees are entitled to such legal protections as a minimum wage, paid overtime, occupational health and safety standards, civil rights, and the right to organize. Employees also are legally entitled to certain benefits, such as splitting the cost of Social Security and Medicare Authorized in 1965 under Title XVIII of the Social Security Act, Medicare provides health insurance coverage for people age 65 and older and for some disabled people under age 65. This federal program consists of Part A (Hospital Insurance), Part B (Supplemental Medical Insurance), Part… payroll taxes with the employer and having income taxes withheld from their paychecks. They may also have the right to unpaid family and medical leave, as well as access to other benefits such as vacation and sick leave, health insurance, and retirement savings plans.
Some workers treated as independent contractors are in fact employees who have been misclassified. Misclassification hurts workers by denying them employment protections and benefits and puts employers who play by the rules at a competitive disadvantage.
Whether to classify sharing economy providers as employees, independent contractors, or a new type of contingent workerA person who works for an organization on a project or temporary basis. is the subject of debate and litigation. Some have suggested that the 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.
Some suggestions would change the way these sharing economy providers are treated. For example, some have suggested that temporary regulatory enforcement moratoria are needed to protect these new work arrangements and encourage innovation. Another proposal involves providing safe harborsA provision of a statute or a regulation that reduces or eliminates a party's liability on the condition that the party is in compliance with defined standards. from legal liabilities so that employers can experiment and perhaps offer some benefits without employer-employee status. Proposals that provide temporary moratoria or safe harborsA provision of a statute or a regulation that reduces or eliminates a party's liability on the condition that the party is in compliance with defined standards. circumvent examination of workers’ proper classification, thereby potentially denying some workers the benefits and protections to which they may be entitled if they were classified as employees rather than independent contractors.
CONTINGENT WORKERS AND ALTERNATIVE WORK ARRANGEMENTS: Policy
CONTINGENT WORKERS AND ALTERNATIVE WORK ARRANGEMENTS: Policy
Access to employment protections and benefits
All workers, including those properly classified as independent contractors and those with part-time status, should have access to both employment protections and some benefits such as health and retirement. Protections and benefits should be adapted appropriately for the worker’s circumstances and could build on existing public and private systems. Employment protections and benefits should be portable and 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, so those who should have access to employee protections and benefits receive them.
States have led the way in cracking down on misclassification. More 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 harborA provision of a statute or a regulation that reduces or eliminates a party's liability on the condition that the party is in compliance with defined standards. loophole that permits misclassification of employees, make misclassification an express violation of the wage and hour laws, and appropriate sufficient funds to the Department Of Labor and the Internal Revenue Service 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 workAn employment relationship based on short-term engagements and the absence of the rights and protections available to traditional employees. and alternative work arrangementsEmployment, such as temporary or contract work, that does not fit the traditional pattern of full-time, permanent work. to allow for a comprehensive understanding of the workers in these arrangements.
Policymakers should commit resources to improve the information available regarding contingent workAn employment relationship based on short-term engagements and the absence of the rights and protections available to traditional employees. and alternative work arrangementsEmployment, such as temporary or contract work, that does not fit the traditional pattern of full-time, permanent work. 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 also offer 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 and 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 Authorized in 1965 under Title XVIII of the Social Security Act, Medicare provides health insurance coverage for people age 65 and older and for some disabled people under age 65. This federal program consists of Part A (Hospital Insurance), Part B (Supplemental Medical Insurance), Part… contributions automatic, and stronger IRS reporting requirements for companies that use independent contractors.