Study Proposes “Independent Worker” Category For Gig Economy

Date: December 10, 2015

Classification Would Serve As Middle Ground Between Freelance, Full-Time Employee

With the rise of the so-called “gig economy” through startups like Uber, debate has grown over how to classify workers who are currently considered independent contractors for such companies, a designation that has proven controversial. The Wall Street Journal reported that a new study from the Hamilton Project, a liberal think-tank affiliated with the Brookings Institution, proposes an “independent worker” designation for those who work as independent contractors for companies like Uber. The paper’s authors, Cornell University professor of industrial and labor relations Seth Harris and Princeton University economist Alan Krueger, say such a designation would require the employer to deduct Social Security and Medicare, and withhold income tax. The “independent workers” would not be able to join a union, but they would be able to negotiate work conditions, and they could also be grouped with other workers so their employers could acquire health insurance for them at a cheaper price. Harris and Krueger say the object of the alternate designation is to allow businesses to succeed with the strengths of their business model, not because they pay employees less than competitors.

The New York Times reported that the study’s authors argued “that many workers in the so-called online gig economy should have more rights and protections than most do now,” but expressed concern that “forcing these new forms of work into a traditional employment relationship could be an existential threat to the emergence of online-intermediated work.” Regulators and companies have options on how to proceed, the study emphasized, but in the current litigious environment, legal experts warn that many startups would be unable to withstand the threat posed by worker suits over classification status. To address the nebulous environment, “regulators could simply clarify the criteria that suggest employment or independent contractor status — categories that, in theory at least, already give businesses a fair amount of flexibility because no one factor carries the day.”

What This Means For Small Businesses

Small businesses will continue to face the brunt of legal and regulatory pressure while uncertainty over worker classification remains. It remains to be seen whether current labor laws will fully address the nature of small “gig economy” startup work, or if new worker classifications would be beneficial for small businesses.

Additional Reading

In his column on Bloomberg View, Justin Fox advocate for the new classification proposed in the Hamilton Project study. Forbes also covered the Hamilton Project study.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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