A slice of bread is good, but a whole loaf is better. In the spring, Senator Mike Braun of Indiana introduced the Helping Gig Economy Workers Act to shield digital companies from lawsuits on worker classification when providing protective equipment during the coronavirus pandemic. This legal “safe harbor” for such digital companies could find its way into the Republican stimulus package under consideration in Congress.
But independent workers around the country, including freelancers and sole proprietors, need much more than protective equipment. They need access to a universal baseline level of benefits, paid for by the companies they work with, without losing the work flexibility they value. They need a new regulatory framework that is suited for the 21st century labor market rather than the 20th century labor market. Reaching these goals requires legislation, but it is very different from what Braun is proposing.
First, it is important to realize that while independent contractors receive tax deductions with expenses like vehicle miles, the tax system penalizes independent workers who provide their own benefits. Most independent workers must pay Social Security and Medicare taxes on the money they contribute to their retirement accounts. By contrast, the contribution of employers to their employee retirement accounts is exempt from these taxes, subject to certain rules. Indeed, this tax exemption can be worth thousands of dollars for middle income workers. Similar problems also arise with health insurance coverage for independent workers.
Second, the companies that do business with independent workers are not able to provide benefits because then the Internal Revenue Service would classify the workers as employees, leading to the loss of flexibility and control over their hours and who they can work for. Such a shift with status would likely reduce the number of available jobs. Those remaining workers would have fixed schedules, capped hours, and inability to work with more than one company. It is obvious that these tax and regulatory barriers weaken the labor market position of independent workers since benefits are more expensive and difficult for them to receive.
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