Firms will Struggle to Differentiate between Contract and Full-Time Employees
The line between a contractor and an employee may get even blurrier. The US Department of Labor has proposed to make it more difficult for someone to be classified as an independent contractor. This is expected to hit several sectors especially hard – namely the transport of goods and people.
The Department of Labor proposal is vague. For example, contractors would be moved to full employee status once it is deemed they are “economically dependent” on a company. What constitutes dependency is not clear. Some studies suggest full-time employees (as opposed to contractors) can cost a company up to 30% more. Yet, as the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) suggests, many employers take advantage of misclassifying workers who are then deprived of federal labor protections. If employees are not aware of their rights these relationships can go undetected.
Upwork, a freelancing marketplace, revealed in a December 2021 study that roughly 60 million people (over one-third of US workers) engaged in some type of freelance work over the previous 12 months. Many worker advocacy groups are understandably championing the Department of Labor’s proposal. Rideshare Drivers United is a group centered on protecting contract driver conditions. They frequently cite that although many Lyft and Uber drivers can make upwards of $60 per hour, their take-home pay after deducting insurance, car payments, and gas is at a minimum wage level.
On the other end, the Associated Builders and Contractors and the largest US business lobbying group, the US Chamber of Commerce, argue that those workers who want to preserve their flexibility would be harmed by being forced into a strict full-time schedule. After all, businesses like Uber and Lyft as well as trucking companies that count on contract drivers have structured their operations on flexible scheduling. Many argue they wouldn’t be profitable otherwise.
The prevailing argument for those policymakers and politicians advocating for reducing contract work is it is exploitative. While there is research to suggest some contractors would elect full-time employee status, that doesn’t necessarily bolster the case that the government should regulate it. Other surveys and studies such as the heavily cited BRX Research survey (1,200 people in 2019) revealed that the vast majority of respondents indicated gig or contract work was not their primary source of income. Moreover, the youngest cohort of this study was seemingly using the flexibility of their gig jobs to supplement their main employment.
Like any law, the unintended consequences are where the focus should be. It does not seem like those advocating for the current iteration of the proposal have pondered the extent to which mandating contractors become employees could affect not only the flexibility of the position but employers as well.