It would appear to be the case that a greater understanding of the nature of work in 2022, coupled with a degree of flexibility, is needed in the issue of worker classification.
One of the biggest changes in the organization of the global economy and the US labour force has been the shift in attitudes and approaches to self-employment — both by companies and workers alike.
Increasing numbers of people across the US are seemingly leaving traditional paid work for various forms of self-employment. At the same time, this has also produced some legislative confusion as to how freelance workers, independent contractors and those working in the gig economy should be classified, with regard to taxation and other elements of employment legislation.
Consequently, there are growing concerns that employers in a variety of industries are exploiting the process and deliberately misclassifying workers as a means of avoiding their obligations.
The growth in self-employment in the US
In 2017, it was estimated that 6.9% of workers in the US were self-employed; as of February 2022, the figure was much closer to 11%. There may be a couple of important explanations for such a significant shift that are most likely linked, either directly or indirectly, to covid.
In the first instance, the covid pandemic saw companies of all sizes and all ages close their doors permanently. People in established companies at all levels who considered their jobs to be secure suddenly and unexpectedly found themselves out of work, and so workers’ attitudes to the value and worth of these sorts of jobs may have changed. In 2022, people are less prepared to base their whole lives around one type of job, or their relationship with a single organization.
Another of the unanticipated outcomes of the covid pandemic has been the way in which growing numbers of people have made a conscious choice to prioritize happiness, health, and wellbeing over traditional job security. This has meant significant numbers of workers giving up the certainty of a bi-weekly paycheck and sick leave in exchange for greater autonomy and the ability to control their individual work/life balance more effectively. In the light of covid, it seems as though many people now place more value on taking direct control of their working lives, rather than being subject to the fortunes (or otherwise) of a company run by others, despite the sort of trade-offs this inevitably requires.
At the same time, these changes in the nature of the workforce have also required the federal government to look more closely at the ways in which corporations classify their workers. This is to examine whether the new self-employment paradigm is being used to exploit people who should in fact be considered as employees, rather than independent contractors or freelancers, in such a way that they do not ultimately receive all of the pay and conditions and benefits to which they are entitled.
Why self-employed classifications are not clear cut
However, the Biden administration’s attempts to ensure that workers are not being misclassified has been made more difficult by the fact that various industries and groups of workers see the situation in a somewhat different light.
The government wants to stop the health care industry, service providers, and big tech companies, for instance, classifying people as independent contractors when they should in fact be employees. It is felt that too often this is being done for companies to get out of fulfilling their statutory obligations to workers, like paying the minimum wage, and to avoid their liabilities to the state with regard to tax.
Consequently, there has been considerable public anger over the conduct of some corporations with regard to low pay, unsafe work and neglecting workers’ welfare, and how the nature of the gig economy can be used to facilitate the exploitation of vulnerable workers.
Most notable has been the case of Uber, which was shown to have consistently put profits before the safety of its (self-employed) drivers in several jurisdictions around the world, and which has been the catalyst for calls for legislative changes in this area.
And yet at the same time, not all of those who are self-employed are happy with a changing approach to classifying employees and independent contractors. There is a growing sense with some that the emphasis is too much on the shortcomings of the gig economy, and insufficient thought is being given to freelancers like journalists and translators, or those who genuinely operate as sub-contractors (like many in the transport industry), who value being classified as independent contractors.
The challenge for the administration will be to get the balance right between stopping (usually) unskilled workers from being exploited by being classified as self-employed, while not impinging on the ability of those who want to be classified as independent contractors from making an income in a manner of their choosing.
There are large numbers of freelancers in a range of both white- and blue-collar occupations who resent being considered by the government as being on the same footing as an Uber driver, and who want their autonomy to be better protected.
Tests to ensure the proper classification of workers
As a means of protecting potentially exploited workers, and helping employers to ensure they are within the law, states are instituting classification tests, like the ABC Test in California, where there are three clear criteria for determining whether a worker is an employee or an independent contractor. The IRS also has a 20 Factor Test for deciding on classifications, whilst another major test is the Economic Reality test used by the Fair Labour Standards that includes 6 major criteria for determining worker status.
Overall, the challenge facing the Biden administration is to square the circle of worker protections v. the recognition of genuine work life independence.
It would appear to be the case that a greater understanding of the nature of work in 2022, coupled with a degree of flexibility, is needed in the issue of worker classification. Most Americans do not want to see big corporations or unscrupulous employers using the law to exploit and underpay workers, but at the same time small business owners and other independent contractors want their status (often long held) to be better understood and appreciated, so that they can be properly classified and protected as well.