The rise of the on–demand economy has presented difficult questions for both employers and employees. It’s not uncommon to see stories about the series of legal and regulatory challenges Uber is facing. Through all of these legal and moral difficulties, the debate remains the same: Should contractors be considered employees or is the solution to create a third classification of worker?
What would a new classification of worker mean for the on–demand economy in general? I’m supportive of finding a way to ensure that contractors have the same worker protection as employees, and that withholdings like FICA, Medicare, workers comp and others are properly addressed so they don’t become a cost that society must bear.
Any new law passed regarding this topic has the potential for a drastic and severe impact on the on–demand economy. Requiring 1099 contractors be considered part-time employees would create disproportionately high costs for on–demand companies, because no individual company can pay for a full set of benefits based on only a few hours worked.
Furthermore, for each new state in which a company has an employee, a significant workload crops up due to unique laws and withholding and filing requirements.
One of the keys to addressing benefits and protections for on–demand workers is to find a way to differentiate between 1099 contractors who are actually “businesses-with-employees” (i.e., employees for whom they are withholding and filing the full gamut of payroll deductions and protections) and those who are “individuals.”
For this differentiating process to work, there must be a way for companies in the on–demand space to continue to pay vendors who are businesses-with-employee entities without additional deductions, because those vendors are already implementing employer-related deductions. But for truly individual contractors, a standardized system of withholding funds for worker benefits could improve the lives of workers without crushing the companies for which they work.
Rather than create a new class of worker, efforts should focus on enabling individual contractors to earn benefits on a prorated basis. The real crux of the problem is that for most benefits in question (e.g., health care, paid time off, etc.), there is currently no way to add these services on an hourly basis.
If benefits can be earned based on an hourly withholding, with a simple nationally standardized implementation, negative impact on the on–demand industry can be minimized and the benefits to this emerging category of contractor can be maximized.
My on–demand company works with thousands of independent lawn-care contractors across the U.S., and is comprised of half businesses-with-employees and half independent contractors. Our businesses-with-employees contractors already have general liability insurance and workers comp for their employees, but many individual contractors came to us without those protections in place.
We found a way to offer general liability and accidental occupational insurance (similar to workers comp) to independent contractors on a per-job basis, with a small withholding to pay for the benefits. This type of approach — covering benefits for the truly individual contractor with a per-job or per-hour withholding — is a way to level the playing field and give on–demand workers a way to earn benefits and protections without disrupting the emerging on–demand economy.
The worker classification for addressing these issues already exists: the 1099 independent contractor. Whether or not a new worker class is created, the eventual solution should address the issue at the heart of the matter — enabling on–demand workers to earn benefits by the hour, with a standardized hourly pro-rata withholding that all on–demand companies can implement equally.