On the same day the Democrat-controlled House of Representatives passed the largest stimulus package in American history, they also passed the Protecting the Right to Organize Act (PRO) of 2021. While the stimulus package was the focus of press attention, the PRO act could upend millions of independent contractors’ livelihoods and economic prosperity.
Despite President Biden and Senate Majority Leader Chuck Schumer‘s support, the Senate should reject the bill and prioritize the millions of Americans who leave traditional employment to embrace a flexible employment structure.
When 10 million Americans are out of work, Congress should not limit Americans’ opportunities to participate in alternative employment structures. Instead, Congress should ease restrictions on independent contractors and create a labor market granting workers extra flexibility, higher income, and more satisfaction.
When dealing with independent contractors, the PRO Act takes inspiration from California’s AB-5, a bill widely condemned as a “job-killer” because it forces most businesses to reclassify independent contractors as traditional employees.
To be classified as an independent contractor under the PRO Act, employers must prove the worker is not under the direct control of the company, the contractor performs tasks outside the regular operation of the businesses, and the contractor is engaged in an established occupation or trade that is the same nature as the work being performed. If the employer cannot prove these three conditions exist, they must be classified as a traditional employee, not an independent contractor.
For businesses, no matter the size, reclassifying independent contractors as employees can have profound financial consequences. The Small Business Administration estimates companies can expect to pay between 1.25 to 1.4 times the employees’ salary for a full-time employee. Much of these additional costs are caused by mandated taxes, such as payroll taxes, federal unemployment tax, state unemployment taxes, and benefits.
With these extra costs imposed on businesses, it’s unsurprising when AB-5 became law, it led to job losses as companies were forced to cut costs. Recognizing the damage AB-5 did to independent contractors in California should serve as a warning about the damages rigid classification laws can have to independent contractors nationally.
The pronounced harm the PRO act will cause to independent contractors ignores the significant number of people who engage in non-traditional employment.Freelance Forwardfound between September 2019 and September 2020, 59 million Americans, or 36% of the U.S. Workforce, had worked as independent contractors. In 2014, it was estimated only 29.7 million people engaged in work as independent contractors. The significant growth of independent contracting over the past decade shows it has become an increasingly important part of the U.S. labor market.
One explanation for the significant growth in independent contracting is the high satisfaction levels compared to traditional employment. It has been routinely shown independent contractors are more satisfied than those in traditional employment. It’s estimated 80% of freelancers are either very satisfied or somewhat satisfied with their status, well above the 53.7% national average. Reasons cited for the high satisfaction of independent contractors include flexibility, the ability to work anywhere, and the ability to spend more time with family- all things traditional employment does not offer.
The high satisfaction of freelance workers refutes the allegations put forward by proponents of the PRO act, who claim their use is exploitative.
The significantly higher levels of satisfaction among independent contractors explain why, between September 2019 and September 2020, 3 in 10 workers left traditional employment in favor of independent contract work.
Freelance Forward also found 65% of those who engaged in independent contracting earned more than they did as a traditional employee within six months. This mirrors findings from the Bureau of Labor of Statistics, who discovered independent contractors earn on average $886 per week, while conventional employees earn $685. Nationally, it’s estimated between September 2019 and independent contractors earned $1.2 trillion. The growth of independent contracting over the past few years shows non-traditional employment is becoming an increasingly important part of the U.S. labor market, a reality many policymakers will have to recognize.
Passing the PRO Act not only denies this reality but it denies Americans the opportunity to participate in an employment structure that drives prosperity and satisfaction. When the Senate considers the PRO Act this session, as Majority Leader Schumer has promised it will, Senators should reject its provisions and protect independent contractors’ rights.
This was published in the Economic Standard.