Self employed workers are not all alike and this has resulted in a number of conflicting reports about whether the number of self-employed or independent workers is growing or declining.
MBO Partners reports that the number of number of independent workers has grown to 17.7 million which is up 5% from 2012 and 10% from 2011. A report entitled Intuit 2020 Report: Twenty Trends that will Shape the Next Decade says that “In the U.S. alone, contingent workers [freelancers, temps, part-time workers, contractors and other specialists] will exceed 40% of the workforce by 2020.” Similarly, Freelancers Union states that nearly one in three working Americans — or about 42 million people — is an independent worker.
Fortunately, in a Harvard Business Review blog “Where Are All the Self-Employed Workers?“, Justin Fox looks more closely at the numbers and discusses the conflicting reports in greater depth. Part of the problem is the definition of self-employed or independent workers. The Intuit report discussed contingent workers which includes freelancers, temps, part-time workers, contractor and other specialists. Justin appropriately argues that it might be a stretch to include part-time workers in a category of independent or self-employed workers. Justin also observes that the Freelancer Union’s 42 million independent workers includes “agency temporary workers (temps), direct-hire temps, on-call workers, day laborers, contract company workers, independent contractors, self-employed workers, and standard part-time workers.”
Why does it matter?
The IRS, Department of Labor (DOL) and many state agencies are targeting the misclassification of workers as independent contractors. They are looking for employers who engage with workers to avoid payroll, unemployment or other taxes or to avoid paying overtime or complying with other labor laws. But, as Justin Fox’s blog reveals, self employed workers are not all alike. There are meaningful differences between housekeepers and web designs; between landscapers and management analysts; and between construction laborers and personal financial advisors. There are differences in the compensation and the opportunities for an employer to take advantage of a worker and it doesn’t make sense to treat them all the same from a regulatory perspective.
Legislators and regulators should distinguish between highly paid, highly skilled independent contractors and less well-paid workers with less skills. The IRS, DOL and state agencies should focus on workers and occupations where there is greater opportunity for a business to exploit the power imbalance and require a worker to become an independent contractor.
Businesses who wish to engage with highly skilled independent contractors are faced with uncertainty because classifying a worker as an independent contractor can be easily second-guessed by the IRS, DOL or state agency. This uncertainty can be easily reduced if the IRS, DOL and state agencies recognized that self employed workers are not all alike and they focused on protecting those self employed workers and independent contractors who most need government protection.