Opinion by Tom Hebert, opinion contributor
he Biden Department of Labor has announced that it is kicking off a rulemaking period to address the “misclassification of employees as independent contractors.” The DOL is hosting a two-hour forum for workers and employers to weigh in on any potential changes to the independent contractor classification.
With this new rulemaking period, the administration has a chance to turn the page on its stridently anti-independent contractor stance. Any new rules should protect the right of Americans to make a living outside of a traditional employment relationship.
Under current law, there are two ways an individual can have a relationship with someone that is paying you. The first is an employee, where a person that is paying the individual has total control over how, when, and where the work is being done.
The second is as an independent contractor, or freelancer, where an individual goes and performs a task and presents the result to the person that is paying them. Freelancing means that a worker can earn a living without needing to report to a boss.
Freelancers set their own schedules, dictate their own workload, and are free to contract with multiple entities. This classification is overwhelmingly popular with independent contractors — fewer than 1 out of 10 of whom would voluntarily reclassify as W-2 employees according to the Bureau of Labor Statistics. Nearly 70 percent of Uber drivers would quit if they had to work full-time hours on a set schedule, report to a boss and abide by other company rules as W-2 employees, according to a 2020 survey.
Freelancers are a vibrant part of our economy and society, and they come in all shapes and sizes. The vast majority of gig economy workers, like rideshare drivers and grocery deliverers, are independent contractors. Auctioneers, mall Santas, plumbers, wedding bands, painters, graphic designers, bricklayers, and magicians are just a few types of people that work as independent contractors.
The left dislikes the independent contractor classification because they cannot force freelancers into a union, one of the biggest drivers of campaign cash to Democratic Party coffers. Organized labor spent $1.8 billion on politics and lobbying in 2020, $1.4 billion of which came directly from worker dues. Nearly 90 percent of the $260 million that labor unions spent on federal elections in 2020 went to Democrats.
In order to make it as difficult as possible to work as a freelancer, the left wants to enact a new regulatory scheme designed to reclassify independent contractors as W-2 employees. The PRO Act contains a three-part test unprecedented in federal law to determine if a worker is an independent contractor or an employee.
The test is modeled after California’s ABC test, a widely reviled provision in the state’s AB-5 bill that nearly 90 percent of California’s independent contractors opposed before it was signed into law. Fifty-nine percent of Californians voted to exempt rideshare drivers from the ABC test via Proposition 22.
In sharp contrast, Republicans have consistently protected the right to work as independent contractors. In early 2021, the Trump administration released a final rule sharpening the definition of an independent contractor under the Fair Labor Standards Act, providing much-needed clarity to America’s freelancers. Immediately after taking office, Biden froze the Trump rule and promulgated a final rule withdrawing the Trump rule. A Texas federal judge struck down the anti-freelancer Biden rule, saying the Biden DOL behaved in an “arbitrary and capricious” manner in being so quick to strike down the Trump rule. The DOJ is appealing that decision.
If the Biden administration succeeds in making it more difficult to work as an independent contractor, millions of Americans will pay more in taxes, breaking Biden’s pledge not to raise taxes on Americans making less than $400,000 per year. According to a recent study from the Beacon Hill Institute and the Tholos Foundation, approximately 56 percent of current independent contractors would pay more in taxes if reclassified as W-2 employees, or 7.7 million Americans. Ninety-six percent of these workers make less than $400,000, a clear violation of Biden’s tax pledge.
The study uses Treasury data from 2016, the best and most recent available data to determine the tax impact of reclassification. The data does not capture the rise in independent contracting due to the rise of the gig economy and the COVID-19 pandemic. A recent survey from Upwork estimates that 59 million Americans now engage in some type of freelance work. Using that number, the study estimates that some 33 million independent contractors would pay more in tax if reclassified as W-2 employees.
Despite the Biden administration’s consistent anti-independent contractor stance, the DOL has an excellent chance to turn the page and protect America’s freelancers with this new rulemaking. If the administration continues to pursue policies that would force independent contractors to reclassify as W-2 employees, millions of livelihoods would be threatened and tens of millions of Americans would pay more in taxes. This is the last thing workers need as they face 8.6 percent inflation, skyrocketing gas prices, and a looming recession.
Tom Hebert is federal affairs manager at Americans for Tax Reform and executive director of the Open Competition Center.