My company uses a lot of independent contractors. I have employees but, given the nature of the work my firm does (short term projects), it makes more sense for me to hire specialists to perform certain tasks rather than bring on a new employee. I have been using essentially the same group of independent contractors for the past 10 years. Some of them work as little as 10 hours a month, others as much as 30 hours a week depending on the jobs we have.
Clearly, I’m not the only small business doing this. Sites like UpWork, Fiverr, Guru and Freelancer.com have created work for literally millions of freelancers, independent contractors and side-hustlers over the past few years. Ride-sharing services such as Uber and Lyft have built their businesses around independent contractors. So have publishing, media, trucking, construction, landscaping, technology and countless other smaller firms similar to mine.
For the employer, hiring an independent contractor (otherwise known as a “1099 contractor,” which refers to the IRS form that employers must submit to report their payments every year) has many upsides. You’re not required to pay employer taxes, health insurance or other employee benefits. But it’s not just the employers who benefit. Most of the 1099ers I’ve met – and all of the ones I work with – prefer the relationship. It offers them more control, allows them to be entrepreneurial and gives them the ability to charge what they want and pick and choose the work they do and the people they work for.
Democratic presidential nominee Joe BidenJoe BidenBiden says he would shut US down amid pandemic if scientists said it was needed Harris laughs off Trump’s attacks in interview: They’re ‘designed to distract’ Biden, Democrats get fundraising boost during digital convention MORE is a supporter of a new law in California – Assembly Bill 5, or AB5 – that fundamentally changes the way companies treat their freelancers. The law, which went into effect this year, requires employers to classify their independent contractors as regular employees if they meet a three-part test. Two of the parts aren’t really a problem: They must be free to perform their work as they wish and must operate their own business. But the third test would be very problematic for me and most of the small business owners I know. That test requires that companies must use independent contractors “in a different line of work from the company contracting with them.”
What this means is that I can’t profit from my contractors. I could hire a freelancer to clean my office or do my payroll. But I can’t use them on my projects and then bill their time to my clients. That would be a devastating blow not only to millions of small businesses across the country but to countless freelancers. Take journalists, for example.
“This misguided law is not only failing to work for writers and journalists, but it has also resulted in the loss of hundreds of thousands of dollars of income for approximately 56 percent of California Freelance Writers United’s more than 1,400 independent contractors, small business owners and other members,” says Maressa Brown, founder and co-leader CAFWU. “Despite fitting the business-to-business criteria, many of our members continue to lose and be denied contracts, as companies decide that hiring an independent contractor in California is too legally risky.”
Thanks to a recent ruling that upheld the legislation, both Uber and Lyft have expressed their intention to shut down operations in the state unless they receive an exemption. That not only hurts the profitability of those companies, but it takes away a livelihood from tens of thousands of freelancers and – most importantly – removes a very popular service out of the residents’ reach. That exemption – called Proposition 22 – will be put to a vote in November.
But Biden doesn’t like that. “Last year California passed #AB5, affording gig workers protections and benefits like a minimum wage and overtime pay,” he tweeted back in May. “Now, gig economy giants are trying to gut the law and exempt their workers. It’s unacceptable. I urge Californians to vote no on the initiative this November.”
There are many independent contractors who agree with Biden’s position. “Prop 22 is not just securing an AB 5 carve out for gig companies,” a Lyft driver based in San Diego who opposes the law told the Verge. “It is also designed by gig companies to ensure that these corporations are exempted from having to observe basic labor protections for workers for generations to come.”
Regardless of which side you’re on, there’s little doubt what would happen to freelancers, independent contractors and side-hustlers across the country if Biden becomes president. There will be a much higher probability that his administration will look to change the current independent contracting laws and re-write them to be more consistent with what just passed in California. Already, states like New York, New Jersey and Illinois are considering the same.
If that happens, small businesses like mine would be facing a significant increase in our costs and a limitation in the experts we can hire for work. Millions of part time freelancers would lose out on the critical side-hustle income they need to support themselves and their families. Entrepreneurs who run full-time businesses where they contract themselves out to multiple customers would face having to give up their independence and take a job.
Gene Marks is founder of The Marks Group, a small-business consulting firm. He frequently appears on CNBC, Fox Business and MSNBC.