While most people are not familiar with the details of what has been known as the “gig” or freelancer economy, chances are, however that you’re taking advantage of it.
For example, if you took an Uber out to dinner last weekend to enjoy that extra glass of wine, then you took advantage of this new, non-employee universe. Uber is not alone in changing how we consume and employ temporary labor (for minutes, hours, days or longer). Like Uber, technology firms such as Wonolo connect pre-qualified and vetted workers (e.g., background check, drug screening) with general labor, warehouse operations, delivery/logistics and other opportunities for “on-demand” work.
Wonolo is one of hundreds of online platforms and apps that serve business-to-business needs for matching work requirements with either a general or targeted labor pool, often providing employer led ratings of workers and worker led ratings of employers (just like Uber and Yelp). Even Uber is getting in on the game, with Uber Freight, a “start-up within a start-up” targeting, you guessed it, the trucking industry to connect drivers, carriers and shippers matching available labor and equipment with LTL/TL needs.
Moreover, a whole ecosystem has emerged to serve the needs of temporary and contract workers which engage with these platforms. These providers, including MBO Partners, offer such services as independent contractor classification tests/attestations, insurance, background checks and additional vetting capabilities, making individual workers even more attractive to hire with a single click.
According to Spend Matters, in 2018 over “30% of the US workforces engaged in contingent work,” a number expected to climb to 50% in the coming years. In total Spend Matters suggests that, 40% of the global workforce is comprised of non-employee labor inclusive of independent contractors, freelancers, temporary workers and professional services/staffing resources.
Freelance and contract workforce models have their advantages for both employers and employees – including flexible working arrangements. But these models are also coming under increasing scrutiny because they impact tax revenue for both state/local and Federal governments.
For example, in a freelance or contract model, employers do not typically need to pay the employer component of Medicare and social security taxes (which is required with full or part time employees). In addition, freelancers can deduct qualified expenses that employees cannot. Add these and other components of non-employee workforce models together and it is often the government that ends up either getting paid less and/or later than under traditional hiring arrangements.
California is leading the charge on cracking down on these models. In 2018, the California Supreme Court issued a ruling that adds additional hurdles for employers to classify workers as freelancers or contractors. The LA Times sites the court ruling noting that “To classify someone as an independent contractor … businesses must show that the worker is free from the control and direction of the employer; performs work that is outside the hirer’s core business; and customarily engages in an independently established trade, occupation or business.”
The Times quotes the court ruling by providing two examples to highlight when a worker should be considered an employee vs. a contractor. Consider “A plumber temporarily hired by a store to repair a leak or an electrician to install a line would be an independent contractor. But a seamstress who works at home to make dresses for a clothing manufacturer from cloth and patterns supplied by the company … would be employees.”
This is a higher bar to non-employee worker classification indeed. But why? The article notes today that the “the misclassification of workers as independent contractors costs the state roughly $7 billion in lost payroll taxes each year.”
Even with this and other court challenges to insure the taxman gets paid, it feels like to us the non-employee genie is out of the work bottle. The question is: what is your organization doing to get smart on leveraging contractors and freelancers?