The Way We Define Independent Contractor Is Broken. Here’s How To Fix It.

Bert Miller is the CEO of MRI Network, a Top 3 executive recruitment firm with 325 offices in the U.S. and internationally.

The big story about the United States’ workforce this year was the rise of remote working. Tens of millions of American employees defied skeptics and showed the world that, yes, they could be productive and be at home.

Underneath the surface, there’s an even more important employment story that emerged this year: the rise of the independent contractor. This includes a whole new group of mostly white-collar employees who went from full-time salaried positions to being fully employed independent contractors. 

Unlike many independent contractors in the pre-pandemic Gig Economy, white-collar contract workers are typically college-educated and working office jobs that have previously not been seen as flexible. They’re now working from home because of Covid-19 safety concerns and because they have the kinds of jobs that are possible to do from home.

Unfortunately, this watershed event in the world of work is being viewed through the same old policy bifocals. Pundits already are claiming that workers must choose between the security of full-time employment or the freedom of contract work. But as the pandemic has just demonstrated, nothing is carved in stone when it comes to employment. We owe it to ourselves — employers and employees — to seize this opportunity to advocate for new legislation that reflects the rapidly evolving employment market.

2020 represents a paradigm shift in employment. Data is still being collected but we have information that can reliably inform the future. One report found that between 2005 and 2015, 94% of the jobs created were non-fulltime salaried positions, and in 2018, one in five jobs in the U.S. were held by a worker under contract. Before the pandemic, some 41 million U.S. adults, held part-time, temporary or contract positions. Pre-pandemic projections that by 2027 freelancers would outnumber full-time employees now seem conservative. The pandemic did not cause the trend of hiring independent contractors, but its black-swan ripple effect likely will have permanent impacts on the very nature of employment in the U.S. 

Policy dealing with the growing ranks of independent contractors was in the works pre-pandemic. In 2019, California passed the AB-5 bill, creating a new three-pronged test for companies classifying workers. Other states including New York, Illinois, Massachusetts, New Jersey and Connecticut have also looked at similar legislation. What’s needed now is a new national policy that employers and employees can depend on no matter where they’re located.

What would that policy look like? First, let’s define terms. I’ve been using “independent contractor” to describe non-full-time employees, also known as on-call, gig, flex, self-employed and consultants. The general rule used by the IRS to define an independent contractor is a worker in which the payer-employer has the right to control or direct only the result of the individual’s work and not how it’s done. That is, a business cannot dictate when, where or how independent contractors do their jobs.

That seems to be a reasonable definition that both workers and companies can live with, but it lacks specificity to discourage the few bad players that purposefully misclassify full-time employees as independent contractors. These employers have exploited existing regulations to coerce workers to, in effect, work full-time for an extended period — sometimes for several years — without the benefits of full-time employment under the mistaken belief that they’re substantially saving money. In reality, based on my 25 years of experience in the staffing industry, the actual savings per worker amount to 10 percent on average, not the 20 to 25 percent widely quoted.

On the other hand, California’s AB-5 law, with its ABC litmus test, goes too far, forbidding independent contractors from being hired for a company’s primary business. That’s a one-size-fits-all policy that was motivated by a misguided attempt to provide protection for only one type of independent worker: app-based rideshare and delivery drivers who work for Uber, Lyft, Instacart and DoorDash, among others. 

What would make more sense is to create new legislation where employers could hire independent contract workers for assignments that last no more than one year. After that, the company could hire an independent contractor as a full-time employee. Otherwise, the employer would have to wait 90 days before rehiring the same worker for the same assignment. Of course, the bad players might still try to work around this rule by making a few changes to the assignment for it to appear new. However, a 90-day interruption — plus substantial penalty fees for intentionally violating the rule — would quite literally give most companies pause. 

A new policy should also include a deep dive into research. The problem is that at the moment we don’t have enough data on the myriad kinds of contract work in the U.S. to design new rules to best fit the needs of each subset. Throwing a blanket over an entire workforce with new benefits like mandated vacation time and childcare will undervalue some and overcompensate others. 

In addition to defining the duration of contract work, let’s also extend nondiscrimination protections. Inexcusably, under current law, contract workers are not afforded the civil rights protections guaranteed to full-time employees by the Employment Non-Discrimination Act.

In March 2020, under the CARES Act, Congress expanded eligibility for unemployment benefits to include self-employed workers for the first time. Moving forward, Congress should create a “rainy day” fund that can provide independent workers with unemployment benefits in times of a national emergency.

Crises can present new opportunities. I have no doubt that 2020 will be among the most important chapters in the American history of employment. A choice shouldn’t need to be made between freedom and security when it comes to work in the 21st century. Now is the opportunity for employers and employees to come together and create new policies that reflect the reality of today’s modern-day workforce.

Original Article: (https://www.forbes.com/sites/forbescoachescouncil/2021/12/29/the-way-we-define-independent-contractor-is-broken-heres-how-to-fix-it/?sh=72f4f1965de6)