Will Clarification on Classification Affect the “Gig Economy”?

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Millions of American workers are now piecing together their incomes by working as independent contractors for one or more clients. Now, the Department of Labor is seeking to stop exploitation of some of those workers who ought to be treated as employees — and receive the accompanying benefits as such.

In July, the DOL issued new guidance clarifying when workers can be classified as independent contractors. Some employers do this to avoid taking on liability, paying certain taxes and offering benefits. And when one company in a niche does so, other companies often must do the same in order to keep their costs low and offer competitive rates.

“We very much believe that misclassification is a problem that has been growing,” David Weil, head of the department’s wage and hour division, told the Associated Press. “It undermines all the legitimate employers who are doing the right thing … they are put at a competitive disadvantage.”

Under the new directive, companies should only consider a worker who is in business for him or herself, as opposed to being “economically dependent,” as an independent contractor.

Furthermore, the directive emphasizes that an employee’s acceptance of independent contractor status “is not relevant” to the legality of the classification.

This is actually a more stringent interpretation of current laws than the one used by the IRS, for example, which tends to focus on whether or not a company has extensive control over how a worker does his or her job.

The scale of the issue has likely been a factor in the DOL’s response. Currently, around 50 million Americans are classified as non-employee contractors, temporary workers or freelancers; the figure is expected to rise to around 60 million in the next five years.

That would mean close to 40% of the country’s workforce would be foregoing protections such as unemployment insurance, workers compensation and retirement plans. And while non-employee workers can –and in most cases must — purchase health insurance on their own, these plans are often more expensive than employer-subsidized ones and don’t offer as many perks or access to health and fitness facilities for overall wellness (walking is the most popular fitness activity in the U.S., but numbers two and three, exercising with equipment and swimming, are difficult for most people to do at home).

The DOL isn’t alone in attempting to draw attention to the issue of employee misclassification and the far-reaching effects branching into the health of both workers and the economy itself. On a legislative level, Sens. Robert Casey (D-PA) and Al Franken (D-MN) have introduced The Payroll Fraud Prevention Act of 2015, a bill that would require that workers be given more information about their employment status, would protect workers who challenge their employment status, and would impose penalties on employers for misclassifying workers.

And in her campaign for the Democratic nomination for president, Hillary Clinton has promised to “crack down” on misclassification, saying that while the “gig economy … [is] creating exciting opportunities,” it is also “raising hard questions about workplace protections.”

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