For those regular readers out there, I apologize for the long gap between posts. I had some personal matters to attend to, and have had a hard time getting back into the groove.
But what better way to kick start the new stream of tax euphoria than to talk about independent contractors, a classification that has a huge fan in Uber, and a new enemy in Hillary Clinton?
Let’s start with some background. The work a person does is typically listed under one of two classifications: employee or independent contractor. Back in the day, the IRS had a 20-point test to determine which label would be affixed to your work, but now the IRS has cut it down to three main factors: behavioral control, financial control, and relationship of the parties.
In other words, are you your own boss, or is someone else calling the shots?
The financial implication of being a labeled an independent contractor can be significant, which is why Hillary Clinton takes exception to it’s booming popularity. Employers are typically required to pay for certain benefits for their employees, such as sick leave, maternity, insurance, and part of the payroll taxes. No such responsibility exists with independent contractors.
Hillary Clinton calls the Uber style use of independent contractors tantamount to wage theft, with reasoning spelling out by Bill Clinton’s old Secretary of Labor Robert Reich in “Why We’re All Becoming Independent Contractors.”
Both Clinton and Reich are absolutely right in saying that companies like to push the limits of what is considered an independent contractor. FedEx is the example cited by Reich (a case FedEx lost), and I’ve been involved with at least one company personally that was on shaky legal ground with their employee classification (no, I was not advocating their use of independent contractors, FYI). I commiserate with those who have been paid like independent contractors when they’re employees, or those who are bogged down in legal proceedings to convince the government that they’re really employees.
Real independent contract work, though, can be an amazing plus, and government regulation is more likely to kill the benefit than anything.
In the correct classification of an independent contractor, the worker is really their own person, offering an amazing amount of flexibility. Take Uber as the prime example, where the driver can turn down ride requests in a way that a taxi driver couldn’t without fear of reprimand.
The other day I read about how independent contracting is the only way to go if you’re trying to start your own business, allowing you flexibility to work on what you want to do while still bringing in some money from an established company.
Independent Contractor work also provides a financial clarity that employee work doesn’t. As an employee, you paycheck reflects X amount, but you’re really getting paid Y, just a significant portion of that is unseen. As an independent contractor, you get exactly what they say you get, and the expenses are yours to work out.
The convolution of cost of being an employee is a huge, largely unaddressed issue. Switching jobs for more pay becomes a veritable matrix of issues, having to factor in items that are often unknowable until you sign the contract. The biggest among them is health insurance, where a higher paying job might actually net you less based on the quality and your use of your insurance plans.
Being an independent contractor pulls those kinds of issues out of the employers hands and puts them into yours.
Most workers who demand a company switch from the independent contractor to employee model want the best of both worlds, but moving over will have a cost, whether in lower pay, lower flexibility, or some other factor. For some people, that’s fine. Robert Reich’s popular HuffPo article argues that many of these workers take the independent contractor position because there’s nothing else for them, which I’m sure is sometimes the case. But many aren’t like that at all. They want the flexibility, and a government move for those who want to be employees will most likely kill the dream of those who don’t.
Now, it should be noted that Hillary Clinton hasn’t actually offered a plan so far, just some vague platitudes. So maybe she has some great idea that will make it all work out for everyone. But I seriously doubt it.
Reich suggests (I keep going back to him because of his past closeness to the Clintons, his ideas even being used in Bill Clinton’s campaign) that the test be “Any corporation that accounts for at least 80 percent or more of the pay someone gets, or receives from that worker at least 20 percent of his or her earnings, should be presumed to be that person’s ’employer,'” so Hillary Clinton might go for something like that.
That suggestion, however, is patently terrible. Basing the worker’s status on the worker’s pay breakout would create an horrific administrative nightmare, creating a world where the corporation would have to offer proof of the worker’s wages from all sources to prove he or she is not an employee. That’s just stupid.
Besides, if a worker is in the startup phase of making their own company as mentioned before, they might not WANT to be an employee, even if 80% of their wages currently come from one company.
The second part, receiving from that worker at least 20% of his or her earnings, is more practical, but seems of rather limited use. Unless I’m misinterpreting what Reich means, which is totally possible.
I’m all in favor of making sure people are really independent contractors–treating someone as an employee but paying them as an independent contractor is illegal and wrong. But changing the rules because enforcement sucks isn’t going to solve the problem.
On that note, maybe we should identify the real problem first, before we kill off a beloved way of working for millions of independent contractors. I’m not convinced we’ve done that yet.