How Companies Could Be Impacted By Federal Policy Change On Freelancers – Forbes

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There’s good news for companies who hire or are considering hiring freelancers who work remotely. According to a report released today by Upwork (NASDAQ:UPWK), which operates a platform for finding and placing freelance assignments, millions more non-tech jobs could be outsourced.

But before farming out additional work, business leaders might want to see whether and how the U.S. Department of Labor changes the definition of independent contractors (AKA gig workers) and how any changes would affect their relationships with them.

Pending Policy Reversal

Reuters reported last week that Labor Secretary Marty Walsh is considering whether gig workers should be classified as employees. The move would boost the Biden administration’s efforts to expand workers’ protections and deliver a win for the country’s organized labor movement, according to the news service.

According to CBS News, this stance, “… is a reversal from the Labor Department under former President Donald Trump, whose administration sought to narrow workplace protections, including one finding that gig workers using an app were independent contractors.”

More Than 25 Million Jobs

Upwork’s report, Not Just Tech: Remote Freelancing Across Industries, examines the expected rise in remote, freelance and hybrid work models in non-technology industries and the potential economic impact the expanded adoption of freelance and remote work may have on the U.S. economy.

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Based on a review of data from the Bureau of Labor Statistics, Upwork said the opportunity to engage more remote freelancers in industries outside of tech is significant. “We estimate that 37%, or about 25.7 million jobs in ‘non-tech industries’ in the U.S. could be done by remote freelancers.”

“This report should tell business leaders that it doesn’t mean they can ignore remote work and remote freelancing just because they are outside of tech,” said Adam Ozimek, Upwork’s chief economist.

“These changes to how we work open up new opportunities…by removing geographical limitations to hiring, and it’s important to remember that if you don’t take advantage of them, you may lose out to competitors who do,” he said.

Stifling Growth

The proposed changes to the independent contractor regulations will likely stifle the growth of the gig economy,” said Marc Snyderman, the chief operating officer of the Apolline Group.

He predicted that, “Companies will be less likely to use independent contractors for fear of audit and potential tax liability for reclassification of those workers.

“Worker safety and worker protection can be achieved without enforcing difficult-to-understand requirements on companies … with a 20-factor test the IRS has used to determine if a worker is an employee or an independent contractor. Essentially, it’s not a bright line rule and leaves companies very exposed to liability as the interpretation of these rules is subjective.

“Let’s be clear that the driver for regulations like this are tax revenues,’’ Snyderman noted.

Upwork’s Ozimek said, “There are many particulars of the specific legislation that I can’t speak to, but it’s always important that we start to understand the economic and social value created by freelancing [and] not to generate more problems than are solved.’’

Impact On Industries

Aleksandar Tomic is an associate dean and program director of Master of Science in applied economics at Boston College’s Woods College of Advancing Studies. He said,“It goes without saying that the largest impact of these rules will be on industries where workers are not paid based on time they spend at work, but based on output…”

“These companies have not yet turned profit, so there is no pool to reach into to cover the increased cost. They will first try to pass the cost to workers in [the] form of lower take-home pay,” said Tomic.

Bearing The Burden

Tomic noted that, “It is important to understand that who bears the burden of a tax or regulation is independent of who writes the check. For example, payroll taxes are ‘shared’ between the company and employee, but employees generally pay them in the sense that their compensation would be higher if [the] company did not have to pay payroll taxes.

“Now, if companies such as these do not have profits to dip into and cannot pass the cost to employees because they are paying minimum wage, then they will have to try to pass it to the customer, which they are trying to avoid. Investors that have been underwriting losses so far, will likely not be excited to continue doing so,” he said.

Start Of A Long Process

“Finally, it will be interesting if these rules have any effect on, say, trucking industry where the distinction between owner-operators and company drivers has been alive and well for a long time, or if some of those solutions are applied to the ‘gig’ companies,” Tomic observed.

“All, in all, I expect that this will be [the] start of a long process of whack-a-mole regulations dealing with unintended consequences and subsequent political pressures,” he advised.

Innovative Practices Needed

Edie Goldberg is the president and CEO of talent management company E.L. Goldberg & Associates and an expert in talent strategy and organizational effectiveness. She said, “While I understand the need to advance our employment laws to meet the needs of today’s work environment, what we need is innovative practices that fuel independent contractors, not ones that force them to abide by laws from a different era.”

She observed that, “Technology now makes it possible for individuals to market themselves, do what they want, when they want, and how they want. Only a small fraction of independent contractors drive an Uber or deliver for DoorDash. So let’s not create laws that are only relevant for that business.”

Impact Depends On Policy Language

Labor and employment attorney Justin Harrison at the Jackson Kelly law firm said the impact of any policy change will depend on the language of any new rule proposed by the Labor Department. “Based on the priorities of the Biden administration, it’s safe to assume that any new rule will be targeted to workers employed in the gig economy, but I doubt whether the new rule will impair the ability of organizations and workers to enter into traditional freelance relationships, or what I would call true independent contractor relationships.

“The problem within the gig economy is that we see workers relying, sometimes exclusively, upon a single organization for their work. If I hire you to perform the same task, day after day, week after week, for an extended period of time, and I provide you with training and guidance on how to perform your service, and ask you to comply with my standard operating procedures, then you should be classified as an employee.

“I would be surprised if the Biden administration wants to change this basic approach, but time will tell,” Harrison said.

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