Is It Time to Introduce a New Class of Employee?

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UmbrellaThere are currently 16 million “freelancers, consultants, and other independent workers” in the U.S., according to a study conducted by MBO Partners. Moreover, this same study predicts that, by 2020, these workers will account for the majority of the U.S. workforce. Within the next decade, MBO’s study says, the U.S. will have between 65 and 70 million independent workers in the workforce. That would be more than half of all workers in the country.

No wonder, then, that Micha Kaufman, CEO and cofounder of Fiverr, suggests that the gig economy “could be the force that saves the American worker.” And even if that’s just an exaggeration — if you’re especially cynical, you could chalk such a prediction up to the savior complex of a man whose company is, in fact, a gig marketplace — current trends seem to say that, if gig work doesn’t save the American worker, it will at the very least become the American worker’s default setting.

Then again, maybe not: Fast Company’s Sarah Kessler says the gig economy can’t possibly last because it’s “being sued to death.” Kessler mentions a recently filed class-action lawsuit against Handy, as well as numerous other examples of gig workers pushing back against the companies for whom they gig: drivers orchestrating protests (and striking) against Uber, a case against Crowdflower, and a letter-writing campaign started by workers at Amazon’s Mechanical Turk, among others. Kessler writes:

“This rising legal retribution is a huge threat to the gig economy. Not being responsible for employees’ taxes and benefits allows companies like Handy to operate with 20 [percent] to 30 [percent] less in labor costs than the incumbent competition, leading to eye-popping numbers like Uber’s $40 billion valuation or Instacart’s latest $220 million round of funding. Lose this workforce structure — either by a wave of class-action lawsuits, intervention by regulators, or through the collective action of disgruntled workers — and you lose the gig economy.”

Kessler’s observations are not entirely unique. Writing for the San Francisco Chronicle’s SFGate website, Carolyn Said asks if the gig economy exploits workers before detailing the ways in which workers are answering this question with an unequivocal “Yes.” Back in July, I myself took some time to look at all the ways in which the gig economy — to put it bluntly — completely sucks.

“This is kind of a restart of something that has always been a problem with 1099 employees,” says Tim Arnold, CEO of recruiting software company Fyre. “You’re not formally managed by the company, and they don’t provide the same benefits, so there’s [a] struggle if you’re doing full-time work [for a company].”

Companies may not have intended for people to work full time in the gig economy, but that’s exactly what’s happening — and it’s leading to some serious issues in the employment market.

“These workers that are now relying on gigs full time … are seeking out benefits and things you would expect from a traditional full-time job — which is understandable, since they’re working full time,” Arnold says.

This May Not Be the End of the Gig Economy, But Something’s Gotta Give

While Kessler seems confident that all of the legal and political trouble brewing for gig businesses spells the end of the gig economy, Arnold isn’t totally convinced. That being said, he does agree that the pressure is putting the gig economy in clear danger.

“Traditional employers are also using this [trouble] as sort of a lever to fight back,” Arnold explains. “Some traditional taxi companies and other firms that are being displaced by these gigs are rallying the troops behind [ideas like] ‘You’re not getting benefits; You’re not treated as an employee.’ They can use that to their advantage as well.”

What Arnold means is that traditional employers can seize upon the faults of gig businesses to lure talent over to their side. If traditional employers can suck enough talent out of the gig economy by harping on all the ways in which gig businesses have — almost indisputably — failed their workers, then those gig businesses will likely see their profits decline and their business models backfire.

Will this lead to a total collapse of the gig economy? It’s not terribly likely that poaching talent from the gig labor pool will be enough on its own to topple the whole system, but it could at least lead to a significant weakening, as more and more job seekers decide they’d prefer regular full-time employment over one-off gigs for companies that don’t very much care about them.

But couple a talent drain with the possibility of unions for gig workers and all the aforementioned legal action, and we come up against the very real possibility that, yes, Kessler may be right: the gig economy may be on its way out as we speak.

What’s the best remedy for this situation? Is there any way to save the gig economy while at the same time giving gig workers the securities and protections they want?

Arnold thinks he may have an answer.

To Save the Gig Economy While Protecting Gig Workers, We Need a New Class of Employees

“I think that’s the best solution, and I think it’s the needed one,” Arnold says. “Both on the employee side and the IRS side, it’s difficult to classify these workers. It’s kind of broad right now. It’s not really clear as to what qualifies you as which [kind of worker]. If [the IRS] were to directly create a new class of employee, that would resolve a lot of this debate and create a middle ground for everyone to work together on.”

Arnold proposes a new class of employee, one that falls between the permanent W-2 employee and the flexible 1099 independent contractor.

“If there was an in-between class where you could have the benefits of the taxation of a W-2, as well as some of the opportunities for [other] benefits, and also have the flexibility for employers of not [hiring] a full-time employee, I think that’s the best middle ground for everyone,” Arnold says.

But how feasible — or even likely — is the creation of a new class of employee?

“Something’s going to happen, whether it’s [a new class of employee] or some other clarification of the classifications,” Arnold asserts. “The gig economy is rapidly growing. It’s an expanding piece of our economy in America, and it’s going to become a bigger and bigger debate on how you handle this situation. Something is going to happen — but I think the IRS route is the best solution.”

Do the Right Thing: Tips for Employers on Proper Classification and Treatment of Workers

But until that something does happen, Arnold has some advice for employers who utilize the services of gig workers: if you’re using 1099 workers, make sure you’re familiar with all of the rules that govern employee classifications.

“There’s lots of specifics of what you can and can’t do when you’re working with a … gig employee,” Arnold says. “Understand what those limitations are.”

Companies that do misclassify employees — intentionally or not — can run into serious trouble. See, for example, FedEx’s recent legal troublesTime and again, judges have ruled that FedEx’s drivers are employees — not independent contractors, which FedEx claimed they were (and subsequently treated them as such). The result? FedEx has paid — and will likely continue to pay — millions of dollars in penalties and damages.

“They miscalculated what their employees should be classified as,” Arnold says. “They were dictating schedules, they provided the equipment — and there’s a big financial impact to making the wrong decision in this [situation].”

Arnold also says that employers need to really be certain that a gig-type, independent contractor worker would be the best choice for a given role before hiring such a worker. That is to say, employers need to be careful that they aren’t classifying workers as independent contractors — likely to save on labor costs — when they’re actually looking for full- or part-time permanent employees.

“[Ask yourself], ‘Do I really need a gig-type person, or am I looking for more full-time, stable work?'” Arnold says. “If that’s the case, then you need to make the appropriate decision. Otherwise, it will come back and bite you.”

For now, Arnold is optimistic about the future: while trouble is brewing in the gig economy, Arnold is thankful that people are at least talking about the issue.

“Having a discussion about it before something crazy happens is a good thing,” Arnold says. “The more progression and movement we can have to stabilize this and make this gig economy formalized — rather than just something startups use to lower their labor costs — I think [that] is important for keeping the progress of America going.”

By Matthew Kosinski