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Workers of the world, disunite! The gig economy is transforming the future

Independent contractor statuses are being reviewed by the government, but they’re asking the wrong questions and missing this historic moment as we shift toward an entrepreneurial society.

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the gig economy

Independent contractors are a staple of the “gig economy”

Hiring workers as independent contractors (ICs), rather than employees, is a staple of many “gig economy” company business models. Uber and Lyft are two notable leaders in the new gig economy; nearly all of their drivers are ICs. These drivers work when they want – jumping in and out of service as their schedules allow, or when the feeling strikes that making a few dollars is more desirable than sitting down and marathoning their favorite TV show or writing the next great novel. The use of ICs isn’t contained to ride services, however. Maids on demand, grocery delivery, and online courier services are all types of companies that utilize armies of ICs.

ICs enjoy scheduling flexibility, greater control over tax planning, and a degree of independence and freedom not generally shared by the average employee. In return, they give up security, health benefits, and other things that are the hallmark of most full-time employment positions. There are pros and cons even for companies. ICs can be less devoted to the company than employees and, by law, companies can’t exert much control over ICs. This is why many companies do not like managing ICs.

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Do a little online reading, and you are bound to come across articles vilifying the gig economy companies who use ICs. Read too many of these articles, and you may buy the myth that no IC wants to be an IC—that they are all pushed into this precarious status because companies won’t make them employees. Many online commentators are calling for the government to step up and curb the abuses of these companies.

The feds are asking questions, but ignoring the obvious

The Department of Labor (DOL) has prioritized the enforcement of misclassification of workers as ICs for several years. The DOL recently stated that whether a worker is classified as an independent contractor under the Fair Labor Standards Act is based on the “economic realities” test. The DOL listed the following questions to assist in making a determination:

  • Is the work an integral part of the company’s business?
  • Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
  • How does the worker’s relative investment (this does not necessarily include tools or equipment) compare to the company’s investment?
  • Does the work performed require special skill and initiative?
  • Is the relationship between the worker and the company permanent or indefinite?
  • What is the nature and degree of the company’s control?

Notably absent from the list of questions is the desire of the workers and companies themselves. The DOL isn’t concerned with how companies and workers would like to define their relationship. Shouldn’t that consideration enter into the determination?

The media’s skewed view of the gig economy

As discussed earlier, from the standpoint of each group, there are pros and cons to employee status versus IC status. Does each get exactly what they want, in every context? No, of course not. Let’s consider hypothetical worker, Pat, who values security and would love a full-time job. Not finding that full-time position, Pat starts driving for Uber as an IC. After a couple of months, Uber lets Pat go due to too many customer complaints. Now, Pat is back out of work and can’t claim unemployment.

It is possible that, if Uber had employed her as an employee, they would have hesitated to let her go so quickly? Pat did not get what she wanted – safe, full-time employment. If the media picks up on her story and spins it into a cautionary tale of the gig economy, we all forget about the many ICs who willingly embrace the arrangement. We also forget that Pat might be out of a job even if she had been hired by Uber as an employee.

We may overlook the fact that Pat received an opportunity in the first place.

If you think there will be the same amount of employment “gigs” to go around if all workers are required to be employees, you are incorrect. In most European countries, employers are required to give at least 90 days notice in order to terminate and employee. You may laud that regulation, which is fine, although it’s not debatable that employers who are required to make greater commitments to their hires are less inclined to hire until they know, with absolute certainty, that they need a new employee long-term.

The same thinking is at play with employees (even “at will” employees who can be let go at any time for almost any reason) versus ICs. Companies are quicker to hire the latter, slower to hire the former. Quick hiring is action that is pro-efficiency, pro-progress, pro-company, and pro-worker. Quick firing is the first three, obviously not the latter. On balance, there’s a strong argument that maximizing company flexibility is of the greatest benefit to our overall economic system. Hence why there isn’t ta ton of chatter in the U.S. for modifying the default “employment at will” standard.

Could a self-employed world would be a more productive economy?

So, why do so many people seem to believe that IC status is only good for the companies that engage the ICs and not the ICs themselves? Using IC labor may allow companies to be more nimble, reduce (if not eliminate) pay for periods of non-performance, incentivize workers to continually develop their skills, and demand that workers consistently perform at their peak in order to compete in a more fluid market for talent. All four of these outcomes are clearly pro-company.

However, the last two outcomes are also solidly pro-worker, at least if we gaze beyond the short-term. We all benefit from performance incentives and expectations from others to deliver our best. Admittedly, the process of shifting workers from employment status to IC status may be, for many, painful. Full-time employment is easier, it’s safer. That is exactly what makes it less efficient. It’s human nature to work harder when you need to, when it really matters. Does anyone doubt that, pound for pound, self-employed people work harder, are more dedicated, than regular employees? A world in which everyone was self-employed, no one collecting a steady paycheck, would translate into a more productive economy.

Is government intervention the answer?

But let’s say you completely disagree with me and feel that we’re not talking simply about a fundamental right of companies and workers to freely label their contractual working relationship. Let’s say you believe this is very clearly about companies using their leverage to push their agendas on reluctant workers. And, you also don’t buy my argument that the company flexibility of being able to hire and fire translates, quickly and directly, into pro-worker benefits. In that case, is government regulation the best way to address the problems at hand, to contain these Dickensian companies?

Government intervention has its limits, the primary one being that companies, just like the human beings that comprise them, don’t generally embrace things they are forced to do. They reluctantly comply. They do just enough.

Empowerment is shifting from companies to workers

Guess what’s more effective than using legislation to force companies to change? The free market when it works well. The relationship between companies and workers is changing rapidly and radically. Because we are living through it, it is sometimes difficult to step back and soak in just how much change has already occurred. Empowerment is shifting from companies to workers.

Today, the playing field is considerably leveled, if not slightly tilted in favor of the worker. Among the reasons for this tectonic shift are:

  • Mobility: 100, even 50 years ago, workers were much less mobile. Our modes of transportation and attitudes about relocation have changed remarkably. Meanwhile, the rise of the telecommuter and virtual worker have made physical proximity to the workplace much less critical.
  • Information: Glassdoor, Vault, and similar sites give workers information about which companies treat their workers well and which do not. Company reputations matter today in a big way.
  • The Internet: In the Industrial Age, the means of production was the factory. Factories are expensive and, consequently, the few who could afford to build them, the “industrialists,” became fabulously wealthy while the rest of the population made ends meet. Today, the Internet is the most important means of production and it is just about free to everyone.
  • The Freelance Movement: Freelancing is no longer viewed as something you pretend to do while you’re really scouring for full-time employment. The freelance movement is bestowing a level of independence on workers that was previously unheard-of. Over one-third of the American work force is now made up of freelance workers. According to a new report by the Roosevelt Institute and the Kauffman Foundation, our economy will be “scarcely recognizable” in 25 years, as this number is expected to balloon.

Though full time employment is safer, it is much less empowering. Daniel Priestley, author of Key Person of Influence, speaks about the transition that we are living through from an industrial economy to an entrepreneurial one. He points out that the owners of capital in an industrial economy, the factory-owning industrials we spoke of earlier, are motivated to keep workers just content enough – content enough to keep doing their jobs and to not challenge the system. Employers don’t want to make their employees wealthy and financially independent, because that isn’t ideal for controlling employees. As a society, we can legislate these employers to do a little more – provide more time off, better health care benefits, etc., but they will always do just enough when forced to act. And, “just enough” will never be all that fulfilling for the employees.

Workers have been handed a golden opportunity to wrestle power from companies

Companies can’t control ICs like they do employees. ICs that work for multiple companies have the leverage in the relationship. It’s game-on and it’s not from unionizing and government intervention. Workers are gaining power due to a shifting work landscape. They are gaining power by disuniting.

Admittedly, some workers are not embracing this opportunity with open arms. For them, it may take a while to see the seeds of opportunity planted in this “problem.” As a society, if we adopt the paternalistic viewpoint that companies must give workers employment (as opposed to IC) status, we are disrupting a natural, positive, and powerful rebalancing that is at work in the market. In doing so, we would unwittingly be undermining the power and long-term well being of the very constituency we seek to protect.

We should all be freelancers, self-employed, entirely responsible for ourselves

Those anachronisms of the bygone era of lifetime employment – frothy pensions, gold watch retirement ceremonies, etc. – are not coming back. We can beg the government to step in and try to hold on to the last vestiges of that era, but we will at best be hanging on by a thin thread. And, the security employees seek? It’s been gone for a long time. My parents and their peers expected lifetime employment. No one my age and below expects that.

We all recognize our companies are unlikely to out survive us. In today’s increasingly quick, hyper-competitive, global economy, friction in the employment market is the default standard. There is simply no longer any real security in being a private-sector employee. However, empowered ICs aren’t at the mercy of individual employers. Their security is self-determined.

This is one fight we don’t want the government to win

Many workers are embracing the new gig economy and its flexibility. The option to work as an IC shouldn’t be ripped away due to a misguided sense of paternalism. The process of shifting from employee to IC is challenging for many, and often full of risks, but the ultimate reward of a successful shift is freedom and empowerment. Let’s not force workers to trade the pursuit of those treasures for vision, dental and ten days off per year.

#GigEconomy

Brett is The Startup Shepherd – part startup consultant, part angel investor/financier, and part business lawyer. A six-time entrepreneur and recovering “left brainer,” Brett particularly enjoys helping startups and rapidly growing socially-conscious companies.

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7 Comments

7 Comments

  1. Gabe Sanders

    September 26, 2015 at 1:32 pm

    Yes, I can understand why many workers embrace this concept. Though the ability of the employers (and they are employers) to take advantage of the contractors will grow and potentially do more harm than the potential good.

  2. Robin Bull

    October 7, 2015 at 1:20 pm

    Hi Brett – If you think about it (or, rather, if others think about it), we are all self-employed. For some of us, like me, it’s just more obvious because we work from our homes and with multiple companies. However, even those who work in a more traditional environment (I used to be a paralegal) are still self-employed. It is up to us regardless of the location or type of work that we do to ensure that our clients / employers are happy and that we are able to continue to working. One of the main differences is that what I do as a freelancer is actually more secure. Think about it: what am I going to do – fire myself? Clients may come and go, but at the end of the cycle there are always companies that need good workers. I’m grateful to be able to work on a long term basis with many of my clients (such as http://www.mikogo.com). It definitely helps to have clients that come back on a weekly basis for my services.

  3. Brett

    October 11, 2015 at 8:58 am

    Gabe, I disagree. As (if) IC status grows, I believe it will be more well understood and there will be more opportunities for IC “gigs” (jobs), both outcomes resulting in less power for employers.

    Robin, I agree entirely that everyone should think of themselves as self-employed in that sense. Unfortunately, many don’t, however

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  5. Skip Mendler

    June 8, 2016 at 1:06 pm

    So eventually, would all workers need to become conversant in the potentially tricky language of contracts, and the intricacies of arbitration? Gee, they’re going to need lawyers, aren’t they?

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Opinion Editorials

The truth about unemployment from someone who’s been through it

(EDITORIAL) Unemployment benefits aren’t what you thought they were. Here’s a first-hand experience and what you need to know.

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Have I ever told you how I owed the government over two grand because of unemployment in 2019, and only just finished paying it back this year?

This isn’t exactly the forum for memoirs, but this is relevant to everyone. So I’ll tell y’all anyway.

It all started back in 2018 when I came into work early, microwaved my breakfast, poured coffee, and got pulled into a collaboration room to hear, “We love you and your work, April, but we’ve been bought out and you’re being laid off.”

It was kind of awkward carrying my stuff out to the car with that Jimmy Dean sandwich in my mouth.

More awkward still was the nine months of unemployment I went through afterwards. Between the fully clothed shower crying, the stream of job denial, catering to people who carried rocks in their nostrils at my part-time job (yes, ew, yes, really), and almost dying of no-health-insurance-itis, I learned a lot!

The bigger lesson though, came in the spring of the following year when I filed my taxes. I should back up for a moment and take the time to let those of you unfamiliar with unemployment in Texas in on a few things that aren’t common knowledge.

1: You’re only eligible if you were laid off. Not if you had quit. Not fired. Your former company can also choose to challenge your eligibility for benefits if they didn’t like your face on the way out. So the only way you’re 100% guaranteed to get paid in (what the state calls) “a timely manner”, is a completely amicable split.

2: Overpayments have to go back. Immediately. If there’s an error, like several thousand of Texans found out this week, the government needs that cash back before you can access any more. If you’re not watching your bank account to make sure you’re getting the exact same check each time and you have an overpayment, rest assured that mistake isn’t going to take long to correct. Unfortunately, if you spent that money unknowingly–thought you got an ‘in these uncertain times’ kinder and gentler adjustment and have 0 income, you have a problem. Tying into Coronavirus nonsense is point three!

3: There are no sick days. If ever you’re unable to work for any reason, be it a car accident, childbirth, horrible internal infection (see also no-health-insurance-itis), you are legally required to report it, and you will not be paid for any days you were incapacitated. Personally, my no-health-insurance-itis came with a bad fever and bedrest order that axed me out of my part time job AND killed my unemployment benefits for the week I spent getting my internal organs to like me again. But as it turned out, the payment denial came at the right time because–

4: Unemployment benefits are finite. Even if you choose to lie on your request forms about how hard you’re searching for work, coasting is ill-advised because once the number the state allots you runs out…it’s out. Don’t lie on your request forms, by the way. In my case, since I got cut from my part-time gig, I got a call from the Texas Workforce Commission about why my hours were short. I was able to point out where I’d reported my sickness to them and to my employer, so my unpaid week rolled over to a later request date. I continued to get paid right up until my hiring date which was also EXACTLY when my benefits ran out.

Unemployment isn’t a career, which is odd considering the fact that unemployment payments are qualified by the government as income.

Ergo, fact number five…

5: Your benefits? They’re taxed.

That’s right, you will be TAXED for not having a job.

The stereotype of the ‘lazy unemployment collector burdening society’ should be fading pretty quickly for the hitherto uninformed about now.

To bring it back to my story, I’d completely forgotten that when I filed for unemployment in the first place, I’d asked for my taxes NOT to be withheld from it–assuming that I wasn’t going to be searching for full time work for very long. I figured “Well, I’ll have a tax refund coming since I’ll get work again no problem, it’ll cancel out.”

Except, it was a problem. Because of the nine month situation.

I’d completely forgotten about it by the time I threw myself into my new job, but after doing my taxes, triple checking the laws and what I’d signed, it was clear. Somehow…despite being at my lowest point in life, I owed the highest amount in taxes, somewhere around the 2k mark.

Despite being based on a system that’s tied to how much income you were getting before, and all the frustrating “safeguards” put in place to keep payments as low and infrequent as possible, Uncle Sam still wants a bite out of the gas-station Hostess pie that is your unemployment check. And as I’m writing this, more and more people are finding that out.

I’d like to end this on a more positive note…so let’s say we’ve all been positively educated! That’s a net gain, surely.

Keep your heads up, and masked.

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Opinion Editorials

COVID-19 acts are unfortunately too short sighted

(BUSINESS NEWS) The biggest flaw in the CARES act is simply that it won’t last. Numerous issues have extended the life of COVID-19 but the act hasn’t matched it.

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The CARES act gives an additional $600 weekly to those on unemployment assistance. The idea being that, combined with the $380 already granted by unemployment, the payments would roughly equal the wage of the average worker prior to the pandemic- about $1,000 weekly.

But on July 31st, the expansion that CARES provides will expire, and benefits will return to pre-pandemic amounts. Those currently receiving the maximum payment will see a 61% decrease in their income. In states that offer lower benefit payments, that percentage goes even higher. All of this comes during a national rental crisis, and moratoriums on evictions across the country are also nearing their ends or being extended last minute.

This isn’t the first or only “yuge” hole in the federal government’s COVID-19 safety net. Many Americans (this writer included) have seen neither hide nor hair of their promised stimulus checks. The HEROES act, which is being billed as a second round of stimulus money, remains under debate- as it has been for several weeks.

And the Families First Coronavirus Response Act, which requires certain businesses to provide two weeks of paid leave to workers who may be sick (or caring for someone who is) has plenty of problems too, namely the laundry list of exceptions to it.

This is just the most recent push to return to the pre-virus economy before effective protective measures have been put in place for workers and consumers alike. After all, with cases of COVID-19 spiking again in the US, it’s apparent that the act is still absolutely necessary. Our lawmakers either lack patience, or compassion – take your pick. Frankly, I say it’s both.

Not only have countless health experts warned that reopening too early will be disastrous, but if a second lockdown is in our future, all of the time, money, and human lives that went into reopening will be wasted.

There is a silver lining among the storm clouds on the horizon. Because ballooning unemployment has created long wait times for benefit applicants, unemployment assistance programs are shelling out retroactive back payments to those deemed eligible.

Good news, at least, for laid off workers who have been waiting months to hear their fate.

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Opinion Editorials

Women-owned businesses make up 42% of all businesses – heck yeah!

(EDITORIAL) Women-owned businesses make a huge impact on the U.S economy. They make up 42% of all businesses, outpace the national growth rate by 50%, and hire billions of workers.

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Women entrepreneurs make history in the U.S as female-owned businesses represent 42% of all businesses, while continuing to increase at DOUBLE the national growth rate!

Women are running the world, and we are here for it! The 2019 American Express State of Women-Owned Businesses Report, states 13 million women are now self-employed entrepreneurs. From 2014 to 2019, women-owned businesses grew 21%. Think that’s impressive? Well, businesses owned by women of color grew 43% within the same timeframe, with a growth rate of 50%, and currently account for 50% of all women-owned businesses! Way to go! What this also means is that women employ over 2.4 million workers who together generate $422.5 billion in revenue.

What can we learn from these women that’ll help you achieve success in your businesses?

  1. Get informed: In a male-dominated business industry, women are often at a disadvantage and face multiple biases. So, know your stuff; study, research, and when you think you know it all…dig deeper!
  2. Stay hungry: Remember why you started this journey. Write down notes and reminders, goals, and inspirations, hang them up and keep them close.
  3. Ask for advice: Life is not meant to go through alone, so ask questions. Find a mentor and talk to people who have walked a similar path. Learning from them will only benefit your business.

Many of these women found ways to use their passion to drive their business. It may not be exactly what they thought it would be when they started out, but is it ever? Everyone has to start off small and rejection is part of the process. In fact, stories of rejection often serve as inspiration and encouragement to soon-to-be self starters.

Did you know J.K Rowling’s “Harry Potter” book was turned down TWELVE times? Seven books later with over 400 million copies sold, the Harry Potter brand is currently valued at over 15 billion. While you might not become a wizard-writing fantasy legend like J.K Rowling, you sure as heck can be successful. So go for it, and chase your dreams.

If you want to support women-owned businesses, start by scrolling through Facebook or doing some research to find women-owned businesses in your community. Then, support by buying or helping to promote their products. Small businesses, especially women-owned, black women-owned, and women of color-owned, are disproportionally affected by the current economic crisis ignited by a health pandemic. So if you can, shop small and support local. And remember, there’s a girl (or more) doing a happy dance when you checkout!

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