Everyday, Americans are being moving from their traditional work arrangements towards ones that effectively allow them to be their own bosses: flexible schedules, the ability to work more than one job at a time, and the ability to self-manage. To many of us behind desks, beholden to a 9-to-5 schedule, this liberated arrangement may sound swell. Unfortunately for US workers, it’s companies that stand to gain the most from this growth in contract work. To ensure that those who make this transition still enjoy the same safety and security offered by traditional working arrangements, policy needs to play catch up.
The National Bureau of Economic Research estimates that, between 2005 and 2015, the number of US workers in these contingent arrangements – referred to as independent contractors by their companies and for tax purposes – has grown by 16 million. They represent 16% of the workforce. American individualism would tell us that this represents an exciting shift towards greater self-reliance and independence. Yet, more than in any other industrialized country, American citizens are reliant on their jobs in traditional working arrangements for a range of social benefits meant to provide stability, security, and safety. The growth in contingent work is stripping more and more Americans bare of these social benefits.
Companies are providing fewer of these benefits—and often none at all—to contingent workers. These workers also lose protections that the government requires companies to provide, such as workplace safety measures and collective bargaining.
A recent report by the Kaiser Family Foundation illustrates this point: The average annual premium for family health insurance in 2017 was $18,764. For workers in traditional jobs, most of that was paid for by their company. On average, employees paid $5,714 of this total—a burden that keeps creeping ever higher, but is still a fraction of the total cost. Contingent workers must face this sum alone. Not only does this disincentivize contingent workers from using insurance, it greatly reduces their overall take-home income if they do. If one broadens this scenario to include other benefits, such as employer contributions to retirement plans, dental insurance, and overtime pay, the differences become even more stark.
In an effort to avoid paying benefits and sidestep federal and state labor laws, companies are re-classifying workers from employees to independent contractors, thereby forcing them to join the contingent workforce. This reclassification typically affects those workers who are not directly involved in the firm’s core line of business; roles like security, janitorial, and food service. Google, for instance, outsources its janitorial services to a sub-contractor. Those janitors working through the subcontractor are themselves employed as contractors, unable to receive the standard benefits that would typically accompany employment at Google. Google saves money because it has one less worker to provide benefits for and one more US worker is left exposed, without any employment benefits whatsoever.
This shift in firms’ approach toward employee contracting is likely predicated on the changing labor paradigm in the U.S. When the government implemented the broad employment policies used today, it was the norm for companies to classify most people working on their behalf as employees, and in turn, those employees would reciprocate by spending nearly a decade working for that same firm. A 1984 Bureau of Labor statistics report states that in 1983, one third of workers aged 35 to 44 had been with the same employer 10 years or longer. Contrast that with the most recent 2016 data of 4.2 years, and it is clear that the relationship between employer and employee is no longer the same.
It is reasonable to expect firms to pursue the employment strategies that most benefit their bottom line, shareholders, and overall competitiveness. The unfortunate reality of this evolution, however, is that the costs associated with employee benefits once borne by firms have now been shifted to the government in the way of food assistance programs, medicaid, and unemployment insurance. To account for this transformation, government needs to re-shape the policies it uses to categorize workers. The security of a worker’s well-being should not hinge on a classification technicality.
Recent court cases continue to show how nebulously defined an ‘employee’ is in the eyes of the law. Rather than continue to add regulation around what defines an employee versus an independent contractor, government should be simplifying regulations. The more intricate employment laws continue to become – the various combinations of state and federal laws and their different applications to different types of jobs is vast – the more the advantage shifts towards the firms who have specialized legal teams to understand and react to changes in these laws. Simplifying employment laws so that the distinction between employee and contractor is clear will make it easier to determine which workers need the benefits and protections that they are missing out on as a result of transitioning into the contingent workforce.
Government-run programs to provide retirement benefits for those private-sector workers who are not offered them through their employers are already under way in some places. To meet the growing demand for employee benefits, the provision of which is increasingly being shirked by private sector firms, these programs need to spread quickly, ideally at the same pace of the contingent workforce.