* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.
Well-paid consultants don't need the same protections as Uber drivers. To meaningfully regulate the self-employed, lawmakers must tailor policies for freelancers across all skill levels
Shahar Erez is co-founder and CEO of the freelance management system, Stoke Talent.
This past year, COVID-19 upended the global economy causing nearly 22 million American jobs to be eliminated. At the same time, about 2.6 million people began freelancing, bringing the total number of self-employed workers to 64.8 million. While some made the switch by choice, others did so out of necessity. For low-skilled individuals, gig work, like driving for Uber and Lyft, became a vital lifeline.
However, there’s a world of difference between an Uber driver who is trying to make ends meet and a freelance developer who charges $300 per hour. Yet, policy makers continue to take a one-size-fits-all approach to regulating the “gig economy,” creating a disconnect between government agencies, employers and their employees.
If they continue on this path, lawmakers will cause far more harm than good. While the intention to guarantee these folks better pay and protections is sufficient, the current approach to regulation misses the mark - here’s how.
The one-size-fits-all approach originates from the adoption of the term “freelance economy” - all non-payroll workers. Before legislators can create meaningful regulation for the self-employed, they need to understand the differences that exist within this broad label.
Highly skilled freelancers, independent contractors, and consultants account for 50% of non-payroll workers and provide expert services, such as software development, digital marketing, IT, and business consulting.
These on demand workers have bargaining power over the companies who hire their services and their wage is well above the minimum; the risk of being exploited is quite low.
Low-skilled gig workers provide on-demand, transactional services, often procured through a consumer-facing app or a staffing agency.
These workers are earning below the median wage and they do not have bargaining power over the companies who hire them.
For example, ride-hailing app drivers and food delivery carriers. While companies that rely on gig workers advertise competitive pay, loopholes in their terms as well as driving related expenses quickly eat away at compensation. A study from Berkeley found drivers could legally earn as little as $5.64 per hour.
Only once policy makers acknowledge the fact there are different types of freelance workers can they understand how authorities should protect freelancers through legislation.
We see that gig workers require greater protective measures while high-skilled contractors will fare better without any legislative interference.
For a policy to protect the vulnerable without getting in the way of others it must first identify who needs protection. To do that, legislators should examine workers through two main parameters:
Bargaining power. Does the worker have autonomy, ownership, and control over their earnings? Do they have the ability to negotiate their terms or write their own contract? For highly skilled workers, the answer is yes. For low-skilled gig workers working via a large service provider, the answer is no. If they don’t agree to a company’s terms (such as Uber or Lyft), there is no negotiating; they simply can’t work for them.
Income. How does the worker’s hourly earnings compare to the minimum wage? Highly skilled workers charge far more than minimum wage, earning a median wage of $25 per hour in 2020. On the other hand, gig workers’ earnings are more likely to be hovering around minimum wage, making them vulnerable to exploitation.
There is a challenge to regulate the freelance economy, but laws that determine the levels of protections, benefits, and unionizing rights must take into consideration the position of the worker. Despite backlash against California’s AB5 by both the self-employed and corporations, the PRO Act now wants to extend its most unpopular provision — the ABC test — on a nationwide scale.
The three-point checklist would reclassify most gig workers and highly skilled workers as regular employees.
While securing greater protections for gig workers, the PRO Act would harm the 50% of high-skilled freelancers who would suffer from loss of autonomy, inability to set their own term, and greater competition with the general workforce. Many fear companies will avoid working with them altogether.
Ultimately, lawmakers need to depart from this current approach and recognize the differences that exist between skilled freelancers and gig workers. Otherwise, employers are forced to stifle a $1.2 trillion segment of the workforce.
