For years, the gig economy has been booming, although the rest of the marketplace was unsure how to deal with the new addition to the job market. The Department of Labor proposed some new additions to rules and regulations for these types of employees.
Is it time for the workforce to accept the permanent inclusion of the gig economy? Let's take a closer look at the potential changes and additions related to gig workers and health insurance.
While you may have heard the term "gig economy" before, do you know what it means? There are many different kinds of labor markets, but this one is characterized by workers taking short-term contracts or leaning into the world of freelance jobs that are available. As the name suggests, employees bounce from gig to gig instead of holding onto a long-term contract or employment.
Some popular examples include Uber drivers, Doordash delivery drivers and other similar jobs. They were considered independent contractors, and therefore, have fewer labor laws to adhere to. During the 2017-2021 presidency, there was a labor rule that made it harder for those who were a part of the gig economy to be considered employees and not contractors. Labor rules like minimum wage laws, benefits, sick days and insurance do not apply the same to contract workers.
Previous rules may change as a result of the current administration publishing a proposal to adjust the way that workers are classified. According to the proposal, many American workers have been incorrectly called contractors by law, instead of standard employees. This affects the worker's access to benefits and protections that non-contract workers have access to.
The rule proposal has been a long time coming and the issue has even been dubbed the "battle over the gig economy". The Biden administration tends to have more pro-worker legislation in comparison to previous years. According to the Secretary of Labor Marty Walsh, "While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation's most vulnerable workers."
The proposed rule has had the industry churning, as it impacts the employers as well as the employees in some interesting new ways, which we will dive into later.
The industry is closely analyzing the proposal because it would change several things about the way that short-term workers are hired as well as their access to benefits. Here are some of the most important proposed adjustments:
Many of the companies that participate in the gig economy are app-based and fulfill an on-demand need. For these businesses, one important change is a new requirement that employers will need to consider when hiring: Is the employee's work essential to the functionality of the company? Previously, this was a vague consideration that relied on the employer's control of the worker and the contracted person's chance to make a profit or stand a loss.
Now, the rule makes it clear that employers need to use five different criteria to discover whether or not the employer should be thought of as an independent contract worker or not. According to the Federal Register, two of the five requirements will remain from the previous rule. The criteria include:
Whether or not to classify a worker as an independent contractor is important because contractors would use a 1099 tax form, which does not require the employer to give the worker any benefits. If more gig workers would technically be classified as employees, businesses would be required to pay for things like health insurance. These rules are usually covered in the Fair Labor Standards Act but are subject to change.
If more workers are considered employees, companies will have to pay more money for additional worker benefits, which is causing some concern on their end. According to PBS, both Lyft and Uber are likely to have raised costs. Further, stocks for similar companies fell by 8% immediately following the announcements.
Despite this, both Uber and Lyft made it clear that they were not too worried about the proposed rule. CR Wooters is the head of federal affairs at Uber and said, "Today's proposed rule takes a measured approach, essentially returning us to the Obama era, during which our industry grew exponentially."
Along a similar vein, Lyft published a blog post called "Department of Labor Proposed Rule - Our Take," where they wrote "Importantly this rule: Does not reclassify Lyft drivers as employees. Does not force Lyft to change our business model." In addition, they released statistics that report "96% of Lyft Drivers work or are students in addition to driving with Lyft," which is why they remain independent.
There are contentious views on whether these kinds of rules are beneficial or not, and the marketplace's reaction has been the same. Nicole Moore, president of Rideshare Drivers United in Los Angeles, says in a CNBC article that passengers are paying more and drivers are getting paid less in some cases.
On the other hand, Uber says that its driver pay has actually risen, "reaching $37 per, what Uber calls, a 'utilized' hour." Regardless of the opinions, a new kind of business model may be necessary for gig economy operations to keep up with changes and maintain employee satisfaction.
After the announcement went live on October 13, many are wondering how this will fundamentally affect the way that the gig economy functions. The new Department of Labor rules will not classify drivers as employees, but companies are facing pressure to offer more benefits for workers who do the job full-time. Some of these could be:
In an interview with CNBC, a Morgan Stanley analyst said that the change is likely to begin at the state level and then move federally. So what would the new proposed rules immediately impact? The aforementioned regulations to determine whether a worker is a contractor or an employee is the most immediate change. Keep in mind that these are not brand new rules, as many of them were commonplace in the Obama administration and then severely loosened during the transition to the Trump administration.
The current labor law is not going to change until the proposal is accepted, and the agency was open for submitted written comments on or before November 28, 2022. As of February 2023, there has been no ruling and the rule is still a proposal.
If you are interested in how this rule and others could impact your business and employee benefit structures, reach out to Lewis & Ellis today to work with experienced industry experts.