Release: In Gig Economy Space, New Report Shines Light on Regulatory Improvements for Independent Workers

July 22, 2020

Independent workers face a dilemma where they cannot currently receive benefit payments from companies without risking their independent status.

WASHINGTON, D.C. – A new report from the Progressive Policy Institute examines the possibility of creating a way to regulate platforms that would preserve the flexible nature of independent workers and the benefits to our economy at large while continuing to protect both workers and consumers. The flexibility of platforms will play a critical role in helping the U.S. labor market recover more quickly from the COVID recession.

The new report finds that companies that do business with independent workers can’t provide benefits because that would turn them into employees, an outcome that the overwhelming majority of these workers do not want. But independent workers providing benefits for themselves incur a much bigger tax burden than they would face as an employee.

Key findings from the report include:

According to a recent report from Edelman Research & Upwork, 51% of respondents said there is no amount of money where they would definitely take a traditional job;
During recessions, unemployment insurance benefits received swell far out of proportion to taxes paid in, as the federal government typically appropriates more money to beef up unemployment insurance;
One estimate from the Berkeley Research Group concluded that switching the status of app-based drivers to full-time employees would reduce the number of drivers by 80 to 90 percent in California.

The new report identifies four prongs in which there is a ‘better way’ to revamp the current system tax treatment for independent workers: straighten out the current tax code, simplify the dividing line, apply a baseline level of benefits, and implement a cafeteria style plan.

Straightening out the current tax code would require independent workers to deduct healthcare and retirement contributions from the earnings calculation for the self-employment tax. In order to simplify the dividing line, an independent worker would have to reach a certain number of hours contracting with a particular company or platform, then the worker would be entitled to a required set of tax-advantaged benefits.

To apply a baseline level of benefits, companies would be able to offer benefits to independent contractors without worrying that they would be reclassified as employees at either the state or federal level. The cafeteria plan would allow independent workers to choose from a variety of pre-tax benefits, including health insurance, paid time off, and retirement savings.

Policy recommendations include:

Construct a new regulatory framework that explicitly recognizes a middle ground of independent workers who can receive benefits from the (multiple) companies they contract with;
Straighten out the tax treatment of benefits so that independent workers are on a level playing field with employees;
Require a baseline level of benefits and protections for independent workers, including a cafeteria style plan;
Install a uniform national standard for determining who is an independent worker.

“A separate and important question is whether the new regulatory regime would be opt-in or mandatory,” said author Michael Mandel, the chief economic strategist at PPI. “If companies do not opt in, they would remain subject to existing legal tests for determining worker classification.”

View the report by clicking here.