The Department of Labor is new Independent Contractor Rule took effect Monday, putting at risk gig workers’ independent status and the freedom and flexibility such workers expect.
The new regulation imposes six criteria that employers must take into account when determining whether to classify a worker as self-employed or an employee, a distinction that for many companies ultimately determines whether they can afford to hire the worker.
Independent contractor status grants workers greater freedom to choose schedules, schedules, mobility and clientele, while the “employee” designation limits these freedoms in exchange for requiring employers to guarantee benefits, such as health coverage and paid time off. Independent contractors may still receive such benefits before the rule, and competitive gig companies often offer workers similar benefits. But by turning self-employed workers into company employees, the new rule turns these optional benefits into mandatory (and usually much less individualized) benefits.
The biggest change, however, is that the rule will turn a sizable swath of workers into unionized employees, one of the ways President Joe Biden hopes to address his situation. promise become “the most pro-union president in American history.”
One problem with the measure is that it is unclear whether any of its six criteria”surpasses the other“, making it impossible for businesses to assess whether they are on the right side of the law. Although the Department of Labor claims the subjectivity of its standard– such as the worker’s “skill and initiative”, “investment by the worker and the potential employer”, and the “nature and degree” of the worker’s autonomy – are intended to grant employers authority over the designation of workers , the United States Chamber of Commerce he claims that these nebulous parameters are made with the opposite intention in mind.
In this regard, the standard’s sextet of definitive criteria concludes with a vague warning: “additional factors may be relevant.”
The new norm is constructed in such a way that “the only time [employers] they can be sure is if they call an employee,” Marc Freedmann, the House vice president for labor policy told the Associated Press. Larger companies like Lyft and Uber may have the resources to protect workers’ independent contractor status and argue it in court if necessary, but smaller competitors are stuck between a rock and a hard place: less able to afford the legal risks, but unable to bear the costs associated with treating independent workers as employees. The rule risks ousting them from the market.
Sen. Bill Cassidy (R-La.), who plans to introduce a resolution to repeal the rule, adds that the new rules will also lead to bullying of employees. “Independent contractors … are protected from forced or forced unionization that would take away their flexibility,” Cassidy said She saidmaking self-employed workers a critical target “for large unions who want more workers to pay forced union dues.”
It makes sense that unions are optimistic about the Biden measure: in a 2022 McKinsey study, more than a third (36%) of workers surveyed identify as independent contractors. That’s a whopping 33% increase over 2016, suggesting that the portion of the American workforce forgoing the traditional 9-to-5 in favor of self-employment is increasing. This is a threat to the business model of these unions.
A rule that limits workers’ independence is hardly a winning proposition among those it seeks to protect. A Bureau of Labor Statistics (BLS) survey reveals that “fewer than 1 in 10 self-employed workers would prefer a traditional working arrangement” to their current one, and that nearly 4 in 5 are happier being self-employed than working in a traditional corporate job. A Harvard Business Review study provides some insight into why: 59% of respondents cited workplace flexibility and autonomy as more important than salary or other benefits.
It’s not just workplace flexibility that self-employed people find so attractive: pay still matters, and when it does, independence still wins. While the outlet is favorable to unions More perfect union he claims that the upcoming rule “will mean higher wages and overtime pay for millions of workers in temp jobs, healthcare, construction and more,” the data tells a different story. According to the BLS, among full-time workers, the average weekly earnings of independent workers are nearly identical to those of traditional workers. The average earnings of part-time self-employed workers is 30%. higher compared to the average income of traditional part-time workers ($333 to $255).
Part of this may be due to the rigidity that companies often have to adhere to when setting employee hours. Whether part-time or full-time, there are limits on how much traditional employees can work in a given day or week, with little opportunity to put in extra effort if they have a large car payment coming up. – or, conversely, take some time off to deal with a stressful life event. In a review of public comments made to the Department of Labor following the proposed rule, Quartz cited a nurse who reported “being able to work self-employed for [an] The infusion company allows me to work harder without burning out.”
No wonder that when the California state legislature passed the infamous Assembly Bill 5 (on which the new Independent Contractor Rule is modeled), self-employment refused by 10.5%, and California’s workforce shrank by an average of 4.4% across affected occupations.
Meanwhile, the costs of both implementing and complying with the new rule could be staggering. Susan Houseman, labor economist at the Upjohn Institute, Notes that for the rule to be effective, it “must be accompanied by enforcement, yet dollars (in inflation-adjusted terms) for enforcement of such labor rules have declined dramatically over the decades.” With a sizable share of the population now identifying as freelancers, and with 40% of workers reporting having done freelance work in the past year, cracking down on alleged worker misclassification could place a heavy burden on American taxpayers.
Consumers may also face higher prices as companies struggle to foot the bill for their independent contractors’ transition to “employee” status. Reuters relationships that companies spend about 30% more on each employee than on each contractor.
So what is the benefit of reclassifying independent workers as employees? Same downside: It makes it harder for workers to be their own boss, choose their own hours, represent themselves, set their own priorities as they see fit. If you believe in the evolution of the workplace and the self-determination of workers, this is bad. But if you believe in a one-size-fits-all model of work, where individuals are employed by traditional businesses and represented by traditional unions, that’s great.