There have been several proposals, both at the federal level and the state level, to enact new legislation around the gig economy and independent contractors in the United States. The state of California is the only state to have successfully passed new laws regulating independent contractors in the state. Similar bills in New York and New Jersey have progressed to advanced stages of completion. Below are the current legislative actions and processes around the gig economy and independent contractors in the United States.
- There has been a number of actions at the federal level to create legislation around the gig economy and protect independent contractors, but none has been passed as of October 2020.
- In April 2019, the U.S. Department of Labor published an opinion report on the conditions for the classification of gig workers under the current Fair Labor Standards Act (FLSA). According to the report, individuals who provide services for a virtual marketplace company (VMC), such as Uber and Airbnb, operate as independent contractors and cannot be classified as workers because they are economically independent of such virtual market places.
- The Department defined “economic independence” as an employment situation where individuals work on their own terms, lack guaranteed pay agreements with the VMC, and are able to offer similar services to consumers through other means, including competing VMC platforms.
1. The Portable Benefits Act
- The first national legislation aimed at reforming the gig economy and providing certain benefits to independent contractors was introduced to Congress in May 2017. The bill, titled “Portable Benefits for Independent Workers Pilot Program Act,” aims to create a $20 million fund to facilitate the development and improvement of portable benefits for independent workers. According to the bill, a “portable benefits” scheme will allow workers to enjoy certain benefit coverage across multiple jobs.
- The bill plans to cover contractors, temporary workers, and self-employed workers. The employer-contractor dynamics is yet to be determined as the sort of benefits businesses are expected to provide will be decided at the conclusion of the initial pilot. According to analysis from GovTrack, the bill has a 2 percent chance of being enacted. The bill is still being discussed in the Senate.
2. Helping Gig Economy Workers Act
- In May 2020, the U.S. Congress introduced a bill to provide benefits coverage to independent contractors. The bill, titled “Helping Gig Economy Workers Act of 2020,” mandates digital marketplace companies to provide financial assistance, training, health benefits, health checks, and personal protective equipment to their workers during the COVID-19 pandemic.
- The bill does not seek to classify independent contractors as employees but provides a temporary mechanism through which such workers can receive added benefits during the COVID-19 pandemic. According to analysis from GovTrack, the bill has a 2 percent chance of being enacted. The bill is still being discussed in the Senate.
3. The Emergency Portable Benefits Act
- In July 2020, the U.S. Congress introduced another bill to provide additional coverage for independent contractors. The bill, titled “The Emergency Portable Benefits for Independent Workers Act,” extended the definition of independent contractors to include part-time workers, freelance workers, temporary workers, contract workers, and self-employed individuals.
- According to the bill, employers, and other relevant stakeholders, are to contribute toward financing unemployment insurance programs for their workers to be utilized in periods of economic downturn. The bill also mandates employers to provide benefits to independent contractors in their employ. Such benefits are to include health insurance, training expenses, workers’ compensation, disability coverage, and income security.
- GovTrack, a bill tracking service, estimates that the bill has a 1 percent chance of being enacted. The bill is still being discussed in the Senate.
- In September 2019, California enacted a new bill to regulate the classification of workers in the state. The bill, titled “AB-5 Worker status: employees and independent contractors,” provides a framework for classifying various members of the gig economy.
- With the enactment of the AB-5 regulation, California introduced a process for classifying employees in the state. The process, known as the ABC test, states that a worker should be classified as an employee if another business entity exerts control over the worker’s task and how it is performed, or if their job is part of a company’s routine business operation.
- The Act establishes that a worker must be treated as an employee if they satisfy the ABC test, regardless of the stated contract between the two entities. In addition to providing all benefits typically enjoyed by employees while employed, the employer must create unemployment and disability insurance provisions for such workers.
- The Act also recognizes that the misclassification of employees as independent contractors has been a major driver of inequality and shrinkage of the middle class. Through this Act, significant groups of gig workers are now to be classified as employees rather than independent contractors. Such groups include food-delivery couriers, truck drivers, freelance writers, ride-hailing drivers, janitors, construction workers, and nail salon workers. The law went into effect in January 2020.
- In June 2019, the New York Legislature introduced new bills to both the Senate and the Assembly. The bill, titled “The Dependent Worker Act,” aims to create a new classification for workers. According to the bill, a “dependent worker” is any individual who provides personal service directly to a consumer through a third-party, as well as those whose wages and compensation are determined by other businesses, which includes services that collect payment from the consumer in order to pay the worker.
- The bill recognizes that the ability of such dependent workers to find jobs has been transformed by technology. The bill grants such dependent workers the right to organize and bargain collectively through a representation. In addition, the bill explicitly classifies such dependent workers as employees, and as such, the employer must offer similar rights and benefits granted to employees.
- Those rights and benefits include the provision of unemployment and disability insurance, medical benefits, equal opportunity, and anti-discrimination employment protections. According to City & State, the state of New York hopes to pass the bill in 2021. Groups of independent contractors that will be required to serve as employees are writers, ride-hailing drivers, and food-delivery couriers.
- In March 2017, the New Jersey Legislature introduced a bill to establish a system of portable benefits for workers in the state, particularly individuals who file taxes as independent contractors using Form 1099.
- The “workers” referenced by the bill refers to individuals who provide services to consumers through a contracting agent. The purpose of such contracting agents is limited to any business that facilitates the provision of services by workers to consumers and makes payments to workers.
- The government of New Jersey has insisted on a number of occasions that the bill is not aimed at reclassifying independent contractors. Instead, it seeks to regulate their operations and protect such workers from misclassification. In addition, the bill plans to provide a portable benefits system for independent contractors, which will allow them to enjoy certain benefit coverage across multiple jobs.
- Since the bill does not plan to reclassify workers, all independent contractors, especially those who file their taxes using Form 1099, will remain as independent contractors without any added employment benefits or rights. However, employers of independent contractors in the state will contribute 25 percent of the total fee collected from the consumer, or a minimum of $6 for every hour the freelancer works, to a benefits provider chosen by the worker.
- The benefit provider must then provide compensation insurance to the worker based on past contributions. Asides from compensation insurance, workers may receive health insurance, paid time off, or retirement benefits as determined by the qualified benefit provider. The bill is still being discussed in the House.