Are they contractors or employees? Biden’s rule focuses on gig workers.

For decades, the United States has made a distinction between employees, who have rights such as minimum wage and overtime pay, and contract workers, who have no such rights. Since the distinction is not always clear cut, courts have developed multi-factor tests to determine between the two, with occasional guidance from the US Department of Labor.

This week, a new proposal from the Biden administration would tilt Labor Department guidelines toward classifying more workers as employees.
The plan rekindles a long-running controversy over workplace equity. Is it better to try to protect workers from unscrupulous companies that don’t offer minimum wages or benefits? Or by applying these traditional norms to a burgeoning new freelance workforce, is the federal government preventing American entrepreneurs from supplementing their incomes? There is no easy answer as these workers – who are part of the so-called gig economy – vary widely in their needs and outlook.

The child stars of this controversy are the roughly 2 million Uber and Lyft drivers. But the rule could touch the lives of the roughly 60 million Americans who do freelance work — from home delivery to writing magazine articles or software.

Why we wrote this

A federal rule change proposed this week would shift the balance on a difficult question that goes far beyond Uber drivers: how to draw fair and honest distinctions between a contractor and an employee.

Trying to answer the question – When are workers employed? — The Biden administration has reignited a long and turbulent controversy over workplace fairness.

Is it better to try to protect workers from unscrupulous companies that don’t offer minimum wages or benefits? Or by applying these traditional norms to a burgeoning new freelance workforce, is the federal government preventing American entrepreneurs from supplementing their incomes?

There is no easy answer as these workers – who are part of the so-called gig economy – vary widely in their needs and outlook. Whatever the administration puts in place in the coming months could affect the incomes and livelihoods of more than a third of Americans.

Why we wrote this

A federal rule change proposed this week would shift the balance on a difficult question that goes far beyond Uber drivers: how to draw fair and honest distinctions between a contractor and an employee.

Aren’t all Americans guaranteed a minimum wage?

For more than seven decades, the United States has distinguished between employees, who have rights such as minimum wage and overtime pay, and contract workers who have no such rights. Under current law, for example, a plumber hired by a company to install new pipes is quite clearly a contractor, who negotiates their price, rather than an employee of the company, who is guaranteed a minimum wage.

In cases where the distinction is not so clear, courts have over the years developed multi-factor tests to determine between the two with occasional guidance from the US Department of Labor.

Why is this controversy boiling over now?

In its dying days, the Trump administration issued an official Labor Department rule that simplified the designation process by reducing the number of factors to consider. Proponents argued that the economy had changed since the 1940s and that, among other things, most Americans no longer worked for one employer all their lives and wanted more flexibility in their hours.

The new rule was supposed to go into effect in early 2021, but the new Biden administration withdrew it and on Tuesday proposed its own. The new proposal reinstates the multi-factor tests developed by the courts and tilts the decision towards a designation of employee rather than contractor.

How many people does this new rule affect?

The child stars of this controversy are the roughly 2 million Uber and Lyft drivers. But the rule could affect the lives of the roughly 60 million Americans who work freelance – from home delivery to writing magazine articles or software.

Uber and Lyft saw their stock prices fall more than 10% on Labor Department news, recovering some of the lost ground in the following days — signs of the uncertainty surrounding the rule’s ultimate impact.

I am not independent. Why should I be careful?

The political and economic stakes are enormous. For decades, companies have used contract provisions to lay off expensive unionized workers or prevent themselves from being unionized by designating their workers as independent contractors. By encouraging the courts to designate workers as employees, the Biden administration is giving the labor movement more people than it could potentially organize. Increased unionization would give workers more power to negotiate higher wages and better working conditions.

Instacart worker Saori Okawa loads groceries into her car for home delivery in San Leandro, California, July 1, 2020. After the state passed a law to classify many gig workers as employees, the Proposition 22 ballot measure called for exceptions for businesses, including Uber and Instacart. Ms Okawa opposed the ballot measure because she wanted more protections for drivers, but it was passed in November this year.

More generally, Biden’s position hinges on the value of full employee status for more working Americans — with the prospect of a benefits package, as well as access to employment. unemployment insurance and workers’ compensation.

On the other side of the ledger, the gig economy is booming. By one estimate, the number of gig workers is growing three times faster than the labor force. And a 2020 Mastercard study estimated that total wages for gig workers on online platform services would double from 2018 to 2023, reaching nearly $300 billion, five times what U.S. hotels and motels pay in their employees in one year.

Studies by other economists suggest that the short-term freelance jobs knowledge workers get on gig platforms might not even exist if it weren’t for the technology these platforms use. It would be too expensive for companies to hire these jobs through traditional means.

Would the new rule improve fairness in the workplace?

It is important to note two things. First, whatever the final version of the rule is – there is always a public comment period and it is likely to be challenged in court – it will serve more as a guide than a binding rule, legal experts say. The courts do not have to follow it. States have their own rules and laws, which will not be affected by federal guidelines.

Second, the rule is likely to prove more effective if it recognizes the growing importance that workers place on non-monetary rewards, in particular flexible working hours. Freelancers come in so many shapes and sizes that a one-size-fits-all approach is difficult. A full-time worker doing occasional side jobs or a software engineer taking on an 80-hour project might not need or want minimum wage and overtime rules. But a worker trying to make a full-time living with Uber or DoorDash will likely need that help.

This is a relatively small group. In a study late last year, the Pew Research Center found that only about 3% of American workers said gig work was their main job. Such work is especially popular among Hispanics and low-income adults. Even the majority of active Uber drivers work less than 12 hours a week, according to a 2019 study.

And the efficiency of these platform jobs provides value even if it’s not reflected in actual pay. The ease of getting hired and paid saves time compared to traditional freelancers who have to take the time to look for work and bill for their services. And schedule flexibility offers huge benefits for those juggling work and life’s duties, like parents who want to pick up their children from school at 2 p.m. but can then do a few hours of freelance work. It may be impossible to find a traditional job with these hours. This time saving can be a boon for employers and workers, says Christopher Stanton, an economist at Harvard Business School.

In a study of knowledge workers last year, Professor Stanton and Catherine Thomas of the London School of Economics estimated that of the 36,000 jobs they looked at, companies earned about $9 million more than if they had used the traditional means, and the workers hired for those jobs earned the equivalent of $6 million in compensation – about $2 an hour more than if they had gone the traditional route.

Starting Dec. 31, Washington State will implement rules with some sort of minimum wage that doesn’t diminish flex hours for Uber and Lyft drivers. They will be guaranteed at least 34 cents per passenger minute and $1.17 per passenger mile or at least $3.00 per trip, whichever is greater. (Those minimums are higher in major cities.) The next day, they’ll start accumulating a paid sick day for every 40 hours worked.

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