The gig economy has received a lot of attention within the last few years because of the creation of Uber, Lyft and some of the other technology driven enterprises. This has raised awareness about workers being misclassified or not being classified as actual employees. The California Supreme Court recently imposed criteria on businesses to determine whether or not employees should be classified as employees or contractors. What’s going on with non-employee status? Is it growing and is it beneficial for both employees and employers? And what about the misclassification issue? Is it just Uber and a few other technology organizations that have created misclassification issues?
First of all, media sources have made it seem like this is a brand new style of work. It isn’t. Non-employee work status has been around. There have been many occupations that have had this type of status. Think about actors, musicians and other artisans who have worked for themselves for many years. Barbers and hairdressers, media workers and computer people have also been independent workers. In fact, just about in any profession you could find independent contractors. But why is there so much talk about it now? Is it really gaining in popularity?
The U. S. Department of Labor’s Bureau of Labor Statistics says it’s hard to say if non-employee status jobs are growing because there are different types of workers such as contingent or alternative employment arrangements. Plus, the data isn’t real current to really determine if an increase has occurred. The number of workers classified under either as contingent or alternative employment was less than 10% in 2005 of all the workers BLS counted. So if you’re reading headlines about the huge increases for the gig economy, they probably are not accurate because there is no real way to tell. There has been somewhat of an uptick of this since the Great Recession as people have had difficulty finding jobs. That could be the reason for all the talk about it.
National Public Radio did a series on the gig economy. In one of the episodes, they looked at workers who had non-employee status. Workers told about their experiences with non-employee status. Many expressed the freedom and flexibility they enjoyed to chose when to work. Some realized it could be feast or famine as far as the work. Some were able to work long periods at a time while others were not. Most of them admitted it wasn’t the best type of work for the long term so they couldn’t afford to buy homes or purchase their own benefits. A few were doing fairly well as contracted workers. Some said they had been laid off and it scared them enough they didn’t want to work where that could happen again. There were some, too, who couldn’t find work and working as a non-employee was what they had to do to make a living.
In another show, NPR looked at the gig economy from the employer’s perspective. One example they cited was a law firm that contracted with legal workers to do repetitive daily tasks so the law firm’s employed staff could work on the larger caseloads. Employers said contracted workers provide the flexibility when they need it. In a joint report, Marketplace.org and Business Insider said employers are rewarded for not having so many employees. The stock market responds more positive to lower employee levels. As they mention in the article, a corporation’s stock will rise if there’s a layoff. Having fewer employees brings greater profits and shareholder return. Hiring contract workers helps with that because it reduces the labor costs of employees that can impact the bottom line. That raises some other financial concerns.
While independent, contract, alternative employment arrangements and other similar work styles may help the bottom line for employers, it doesn’t always help the worker. Wages can be much lower. The law firm from the NPR report paid the contracted workers lower than the employees because of the type of work they were doing. The workers may have been lawyers but that didn’t determine their pay. It may have been a way, too, for the law firm to provide higher wages for their employees but, as Brookings Institute pointed out, the lower wages for non-employee staff could have a detrimental effect for all workers because it can suppress wages especially if the non-employee market grows. The other issue is workers may receive a flat fee for the work they’re being hired to do and when broken down into an hourly rate, it may be less than minimum wage. It’s important non-employee workers watch the amount of time they provide their services and overtime pay is also not usually included in the flat fee which also reduces the worker’s earning potential.
It’s also not just about wages. Under current labor laws, non employees may not receive benefits such as unemployment or workers’ compensation. Health insurance is usually not included either. The money earned for the work performed by non employees may not be enough for a health insurance policy especially if the amount of work changes. Again, the lack of benefits puts ALL workers in a precarious situation as it sets the precedence for employer benefits of the future and diminishes the leverage workers would have.
Many non employees can also end up with owing back taxes either because they didn’t think about the obligation of paying taxes or forgot about taxes. This can become a huge financial strain especially if their wages are low and the penalties and interest are included in back tax payments which only increases the amount.
The employers who willfully misclassify workers are looking at savings. They don’t have to pay benefits or their share of taxes. In addition, by classifying workers as non-employees, they don’t have to spend time and money managing labor laws and regulations. The consequences for misclassifying can be huge. Again, back taxes, interest and penalties can all add up. It also creates an unnecessary burden on those employers who actually classify their workers correctly. They may be the ones who have the brunt of paying tax increases because of employers misclassifying workers. This isn’t to say that all the employers who misclassify their workers are doing it on purpose because it can be a mistake. But both federal agencies, IRS and Department of Labor, have guidelines to help employers determine non-employees and employees.
While some employers may view non-employees as being more of a savings and allowing greater flexibility, it may not be a good alternative. Non-employees, depending on the status, may not have to answer to management at the company they are contracted through. This can cause several problems that can be improper work being performed, not working when needed, not getting along with others, not being productive and the list can go on. In other words, those type of problems can eat up the savings of having contracted workers as more time and money is spent to resolve those issues. Although some would say loyalty is hard to come by now, there still can be some issues when it comes to non-employees. Contracted employees usually are not as committed and loyal as regular employees which can reduce productivity. There also can be a loss of continuity as non-employees doing a single job can change quickly. This can cause problems with customer service as the experience and knowledge isn’t available.
As far as workplace flexibility and some of the other reasons to have contact workers, those can be great issues for workers and employers to work on together. Other alternatives may be identified as both sides can utilize problem solving strategies to help them. Yes, training may be needed, even a facilitator but it may provide the organization with a much better long-lasting and sustainable solution.
Unions, too, can help non-employee status and misclassification issues. They are great sources for knowledge of labor laws and regulations. Non-employees can also be good organizing opportunities and that can help with suppressed wages that only hurt everybody. Actors, writers, and other media people are great examples of how unions have helped them wages and benefits and workplace issues within a non-employee environment.
For some people and some workplaces, contracted working may work but it’s important both workers and employers really look at the issue before deciding. We as a society also need to look at what we want and value. More current labor laws are needed to address issues workers and unions have in addition to those of workplaces. We need to address the value of shareholder return over workers. Why are companies rewarded for fewer employees? Why should they be rewarded for laying people off? Is shareholder gain so much more important than the lives of everyday people? All of these things need to be considered as we look at how we work.
In a Harvard Business Review article, a former U. S. Labor Department official writes of his concern about a possible trend on non-employee status. He says it could hurt the overall economy as income inequality broadens and wages continue to be suppressed. In addition, employers, he says, should not shirk their responsibilities as employers. If they do, other problems will follow. Is that what we value? Is that what we want?