In October, the Department of Labor issued a notice proposing rulemaking on guidelines around employers’ classification of workers as employees or independent contractors. The nearly 200-page proposed rule would change how the agency determines who constitutes an employee or independent contractor. It would alter the way the Fair Labor Standards Act, a 1938 law that determines eligibility for protections such as minimum wage, overtime, Social Security, and unemployment insurance, is put into practice.
The proposed ruling claims that many companies are misclassifying workers as contractors and that, if forced to classify them as employees, they would be better off. However, the administration is failing to recognize one key factor: The overwhelming majority of gig workers don’t want to be employees.
A statement issued by the Small Business and Entrepreneurship Council called the Labor Department’s rule “out-of-touch with the modern economy and how people want to work.” Liya Palagashvili, a senior research fellow at George Mason University’s Mercatus Center, called out the reality of the situation if this ruling is put into practice: “many of them would neither become employees nor be able to maintain their jobs as independent workers.”
Access to benefits and social safety net protections are key to the argument around worker classification, which, mind you, is not anything new. But the acceleration of on-demand and freelance work has put this conversation and, more specifically, our benefits system under a new and bright spotlight.
The challenge that exists with trying to turn these app-based drivers, delivery workers, handymen, and freelancers into employees is that many of them work two or more jobs, work on different platforms, and, quite frankly, enjoy their work.
According to a recent survey we conducted at Stride, almost 70% of respondents said they have no plans to stop working as independent workers, and nine in 10 said they were happy with their work. But it’s not as straightforward as sticking to one job forever: More than 60% said they were generating income through two or more jobs. If they were forced to work as employees for one company or one platform, they could lose out on money due to being required to work a certain amount of hours a day on a consistent basis, putting workers that obtain work through different platforms at a disadvantage.
This data is consistent with a 2018 Bureau of Labor Statistics study that reported 79% of independent contractors preferred their contracting arrangements over a traditional job. Flexibility is the number one non-monetary benefit to workers.
The problem is not that they lack the right classification and therefore should be employees. Rather, the problem is that they should be given access to protections, benefits, and a financial safety net like employees. Our current laws force us to couple benefits and work classification—employees get benefits; independent contractors don’t—but it doesn’t have to be like that.
For instance, let’s examine what the government did to protect workers during the early days of the pandemic: The administration issued the Pandemic Unemployment Assistance program, which created a federal unemployment benefits program and expanded it to include freelancers, gig workers, and independent contractors alike. Furthermore, the Families First Coronavirus Response Act provided refundable tax credits for benefits such as paid sick leave and family leave. Many self-employed workers qualified for these benefits. But the majority of these protections were done away with in 2021—and the administration has not given much thought to how we can look at this model versus the worker classification model.
To create a more financially resilient labor force and remove job lock, I believe we should re-examine and expand these moves to create a third way: Decouple benefits from work classification, innovate on portable delivery models, and require job providers to help fund these benefits. We can take the best of both worlds by allowing companies to incentivize contractors with benefits, without forcing them into employee status. At Uber (one of our largest workforce partners at Stride), CEO Dara Khosrowshahi has said companies like his should be required to do this.
Another advancement that we can examine to get a better understanding of what a portable benefits system could look like is Individual Coverage Health Reimbursement Arrangements. The creation of ICHRAs allows employers to provide employees with tax-advantaged funds to purchase health insurance through Affordable Care Act marketplaces. Why can’t we take this model and apply it to the 1099 economy—particularly for workers who obtain work through platforms? It continues to provide greater flexibility for employees, gives the company control of its own costs, and unlocks dynamism in the labor market.
There are many different ways that we can address the core problem this ruling is trying to solve—a lack of benefits and social safety net protections for contractors, independent workers, freelancers, gig workers, and the entire 1099 economy. These are just two examples of how we should be thinking differently about our current benefits system. It’s about creating a system of accessible and affordable portable benefits where protections are tied to a person’s being versus their employer.