One of the greatest challenges facing the 21st century economy is that of providing freelance employees, also referred to as independent contractors, the same rights and privileges granted to those who do not work for themselves. With freelancers comprising between 5-30% of the workforce, it’s a problem the Labor Department has begun to tackle.
The reasons for this are because companies such as Uber and Groupon are allowed to skirt workers’s compensation laws by classifying those who work for them as independent contractors. This helps them reduce costs and function with lower operating margins and higher profits. It also leaves those who work for them exposed to all manner of lawsuits as well as the inherent physical risks and associated expenses that can result from performing their job.
This loophole in the law creates an unfair advantage for companies. While it obviously makes them more profitable, it exposes independent contractors to a considerable level of risk.
The Labor Department is aware of the problem and has responded with a 15-page clarification of the Fair Labor Standards Act. As legal challenges to companies such as Uber’s business model arise, this clarification will no doubt be used by attorneys seeking to require Uber, Groupon, and others to reclassify employees so that they will be eligible for workers’ compensation overtime, and other benefits granted to regular employees.
Furthermore, the Internal Revenue Service and Department of Labor are working together to tackle the problem of deliberate misclassification. In 2014, the IRS conducted investigations that resulted in the awarding nearly 110,000 workers in excess of $79 million in back wages. Together, these two federal entities are aiming to create a streamlined classification that will protect workers’ from predatory employment practices and usurious risk during the performance of their work.
This clarification and classification are timely and imperative. With freelance and independent contractors on course to comprise up to one-half of the future economy, it’s a vast segment of the population that these changes will impact.