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Why We Should Consider a 3rd Classification for Worker Status

By August 9, 2021September 7th, 2021No Comments

A gig economy executive recently told me that the COVID-19 Pandemic has forced some of the largest app-based gig firms and global retailers to accelerate velocity and create their own delivery platforms three times faster than they had intended. While the economy rapidly evolves, so do regulators at the federal and state levels. 

California’s Prop 22 passed in November 2020, protecting rideshare and delivery giants and the independent status of their workers. The California government had been on an all-out assault against Uber and others for their classification of app-based drivers as independent contractors instead of employees. The debate as to whether or not gig workers are contractors or employees appears to be settled in California…for now.

Following California’s lead, other States are intent on addressing worker classification in their jurisdictions. Some, like West Virginia, are working to make it statutorily easier for companies to pay workers as a 1099, while others are turning up the heat. In fact, 23 different states have bills pending in their respective legislatures which seek to modify or significantly alter their current worker classification statutes. Though not crafted and pushed by gig companies, Massachusetts Bill SD.2359 is similar to California’s Prop 22 as it seeks to establish “A Rideshare Driver Bill of Rights.” The bill, if it becomes a law, will ensure companies meet minimum income thresholds, pay overtime, provide per mile compensation, etc. It would also provide protections to drivers against termination from app-based platforms. 

In many cases, proposed legislation is initiated or backed by unions and their pro-union State legislatures attempting to expand collective bargaining rights. Oftentimes, there are simply budget considerations. As the gig workforce grows, other sectors of the economy, rich in W2 workers, see a shrinking labor market. Fewer W2 employees mean fewer tax dollars and lower unemployment and workers’ compensation premiums. With stricter laws governing businesses, states hope to a.) scare companies into classifying their workers as employees, or b.) have the means to reclassify workers upon audits and investigations into business practices, essentially forcing companies to reclassify their contractors to employee status. 

Without a national method for determining worker classification, and with many states eager to modify stale regulations, companies are faced with the increasingly difficult task of complying with varying rules based on jurisdiction, which usually requires unique and nuanced operational methodologies and differing consumer experiences state to state and even sometimes city to city. During the COVID-19 pandemic, municipalities have sought to enforce their own policies related to driver earnings. 

There has to be a better way. This much we know. Survey after survey of gig workers shows the majority of them prefer flexibility –  the ability to literally work whenever they want, accept and decline jobs freely and use multiple platforms simultaneously, all to have control over their own financial goals – to the lack of operational freedom that is inherent with employee status.

Governments around the country (and internationally) appear to be insistent that they address how gig companies and workers operate, leaving both parties in anxiety-ridden limbo. It’s time for consensus. If the purpose of government is to protect the rights and interests of citizens, the citizens want the cost-effective, convenient services provided by gig workers. Gig workers want operational and financial freedom. Businesses want to grow. 

It’s time for a 3rd worker classification. Like the U.S., Canada has employees and independent contractors. Unlike the U.S., they have a third class – Dependent Contractors. Dependent contractors working in Canada are not unlike independent contractors, but are economically dependent upon one principal contract relationship. While the classification of Dependent Contractor in Canada actually makes employers liable for employee benefits – namely a mandated severance, a U.S. version could provide some protections for gig workers, while not holding companies and workers liable for the legal and tax requirements W2 status would bring.

In a federally protected third classification in the U.S., it would be possible for gig workers to maintain the financial and operational flexibility they covet, while receiving some protection such as minimum earnings guarantees, programs to draw upon if unable to work due to injury or other circumstances, reasonable subsidies for healthcare and education. It would provide companies with a knowable framework against which they could economically address long term. Politicians in this country used to compromise. The future of the gig economy and perhaps the economy in total may depend on them compromising once more. 

As the gig economy continues to push ahead and regulations expand across the country it will still be some time before we see a 3rd worker classification. Delivery Drivers, Inc. (DDI) helps companies protect their businesses by providing risk management through compliance and legal expertise with independent contractor management solutions. At DDI our mission is to serve, provide advocacy and leadership to independent contractors and businesses in the global gig economy.

About Delivery Drivers, Inc.

Delivery Drivers, Inc. (DDI) was founded in 1996 and is a third-party administrator with a singular focus – to bring Human Resource and Driver Management solutions for business owners operating with independent contractors. DDI’s mission is to serve, provide advocacy and leadership to independent contractors in the global gig economy. DDI’s business model helps companies find and onboard top-quality independent contractors and assist with accounting and tax services – all while providing compliance and legal expertise.

For more information, visit: www.ddiwork.com