Is an Uber driver a small business owner? Or are they an exploited employee? That question matters to your small business because there’s a war going on over the question of “employee status.” Whether you’re a gig worker, service provider, consultant, or one of the hundreds of other kinds of self-employed entrepreneurs—or you hire those kinds of workers—you’re a soldier in this war.

Though technology has made it complicated, choosing how to classify a worker is a long-standing issue for businesses. Companies generally prefer treating workers as independent contractors. As such, they don’t pay payroll taxes or overtime, or give these workers other benefits.  The companies have flexibility in when and how they use workers. Independent contractors aren’t allowed to unionize.

As a result, many companies—not just tech companies—intentionally choose to classify (or misclassify) workers as independent contractors.

Now, new developments make things even more complicated:  
  • Services using platforms to provide services: Services like Uber, Lyft, Doordash, Grubhub, Instacart, where the workers are the ones providing the service sold by the company and, though workers might set their own hours, the company sets prices and terms.
  • Platforms connecting freelancers with customers: Platforms like Upwork, Rover.com, TaskRabbit are intermediaries enabling individual contractors or small businesses to find customers. The workers negotiate their own terms, pay, time, and much more.
  • Permanent independent contractors: Whether for janitors, bus drivers, food service workers, or even software engineers, the real hiring company shifts the burden of meeting employer obligations off to a third-party, often with minimal oversight. In Silicon Valley, where I live, this is a common practice by the biggest tech companies.
The question of how to classify workers is being fought on both the federal and state level:  
** US

In April and May, the US Department of Labor and the National Labor Relations Board issued rulings and advisories indicating that gig workers and independent contractors would be treated essentially as entrepreneurs, running their own businesses, and not subject to employment protections, such as minimum wage and overtime pay, nor can they form unions.

** California

Often a trend-setter in legislation, California’s State Assembly just passed AB50, a bill requiring independent contractors to be treated as employees, with wage, hour, and benefit protections. This comes on the heels of a California Supreme Court decision last year, Dynamex v. Superior Court, holding that to be considered an independent contractor, the work being done must be outside the company’s normal course of business, the company doesn’t control the worker, and the worker has an established independent trade.

From the time I started in business more than two decades ago, this question of how to classify workers has stymied both larger and small businesses. That’s because having just these two classifications—employee or independent contractor—leaves out too many people.

One reason many people start their own businesses is that they want to control their own time and have flexibility of when and how much they work. And businesses want and need more flexibility in how and when they use workers.

But no worker should earn less than minimum wage. All workers should be entitled to at least the following:
  • minimum wage provisions
  • overtime protection
  • employer payroll taxes for Social Security
  • Workers Compensation

And others, whose work provides the central service being sold or who work exclusively for one company on a long-term basis, should be entitled to benefits, including health care.

Many Lyft and Uber drivers that I used to talk to would say they started driving because it met their need for more control, especially over their time. But, increasingly, they tell me that they have little or no meaningful control—the companies set the terms and prices, control what kind of cars they must have, and they have to work certain times to make even minimum wage.

Treating so many workers as independent contractors, without employment and pay protection, has real consequences for the economy and our society. Many of these hard workers, often working more than full-time, end up needing government benefits, such as food stamps. This costs you and I—and our small businesses—money. As importantly, I suspect part of America’s growing income inequality comes from companies shifting the status of workers.

It’s time for a new designation that takes into account the realities of both workers and companies and the complexities of these changing relationships.

Copyright Rhonda Abrams, 2019

This article originally ran in USA Today on June 19, 2019