The coronavirus just ended independent contracting as we know it
Well, it was a good run, but soon it will be time to say goodbye to all those independent contractors, freelancers and the “gig” economy as we now know it. The rules are going to change significantly in the next few years, and we can thank the coronavirus for putting the final nail in the coffin. If you’re a small business owner like me who relies on freelancers to do certain kinds of work, we’re going to have to change our models — and pay more in the future.
For a couple of decades, the gig economy was booming. Sites like UpWork, TaskRabbit, Fiverr and Freelancer added millions of independents looking for work, either to supplement their existing incomes or for their entire livelihoods. Uber, Lyft, Grubhub and other similar platforms continue to base their business models on renting out drivers and contractors to perform services piecemeal. They avoid having to absorb the costs of being an employer, like paying employer taxes or providing health insurance and retirement plans. Trucking, information technology, services and construction companies also currently take significant advantage of outsourcing specific tasks to those “1099’s” (named for the federal tax form that employers file to report payments made).
The number of independent contractors grew 15 percent over just the past decade, according to a recent report from the ADP Research Institute. More than a third (57 million) of workers participate in the gig economy, according to a Gallup poll. A report from fintech platform PYMNTS finds that as much as 40 percent of U.S.-based workers generate a large part of their income via freelancing. The gig economy is huge.
But those same independent contractors are being caught up in the populist debate that’s forcing politicians from both parties to choose sides: Are you on the side of “workers” or the corporations?
The workers – those hard-working independents – are missing out on the key benefits and security that their counterparts who are gainfully employed enjoy. Some of the companies that employ them have been accused of mistreatment, pay manipulation, exploitation and abuse. Many companies (like mine) argue that their contractors generally have no problem with their arrangements and enjoy the flexibility and independence of being their own boss.
Whether or not you agree, it makes no difference. The laws are going to change. Right now, the federal classification of independent contractors is based on a set of guidelines from the IRS that is subject to wide interpretation. The Trump administration has paid little attention to this area. So states have picked up the baton.
In California, for example, legislation at the end of 2019 restricted the use of 1099 workers for many transportation companies – including Uber, Lyft and truckers — with new and more strict classification rules. For example, independent contractors in the state are allowed to be free to perform their work as they wish and must be in a different line of work from the company contracting with them. Otherwise, on the payroll they must go. “For far too long, big corporations skirted their responsibility to provide basic protections to workers,” Art Pulaski, executive secretary-treasurer of the California Labor Federation, told the Los Angeles Times. “The California labor movement will be laser-focused on implementing and enforcing (the ruling).”
Presumptive Democratic presidential nominee Joe Biden has publicly confirmed his “strong support” for the legislation, and by doing so has indicated that he will back a significant change to these laws if elected. Even if President Trump is re-elected, it’s highly likely that many of the more populous blue states will follow California’s lead and make changes to their own independent contracting rules. Already New Jersey and New York have or are in the process of doing the same.
And now…the coronavirus pandemic.
In an effort to help all those workers displaced by the Great Suppression, the bipartisan CARES Act not only provided additional federal benefits to employees, but legislators also took the unprecedented step of including independent contractors in the group of “workers” who could also apply for both state and federal aid.
What does this mean? It means that even on the federal level, legislators have tacitly admitted that all those gig workers are really not so “independent” after all and – in fact – are little different than the displaced workers who lost their jobs. It’s a fundamental change in the government’s attitude towards gig workers and one that has opened the door to additional codification of the independent contractor rules. If both employees and independent contractors can receive unemployment when they lose their “jobs,” aren’t they really, in effect, the same?
So guess what, fellow employers: Things are going to change.
For years we’ve been getting away with using people as needed and without having to commit. We’ve avoided the responsibilities and the costs of being an employer. We have not broken any laws. And – at least in my case – the 1099 workers I employ are all happy to be independent. At least that’s what they tell me. But this current economic downturn caused by the pandemic has shaken many of them up and caused them to re-visit their definition of “independent.” That’s going to lead to big changes in the rules in the not-so-distant future, and will likely end independent contract as we now know it.
Gene Marks is founder of The Marks Group, a small-business consulting firm. He frequently appears on CNBC, Fox Business and MSNBC.
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