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Four ‘gig work’ misconceptions driving counterproductive reforms

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The growing “gig economy” has received heightened policy attention in the last two months. Two weeks ago, the Department of Labor rescinded a rule that would have made it easier for workers to be classified as independent contractors. In March, congressional Democrats passed the PRO Act, which would create a stricter definition for that same independent contractor classification.

Concern for independent workers, who lack access to benefits afforded to traditional employees, is rightly founded. Many accuse “gig platforms” such as Uber, Lyft and DoorDash of misclassifying workers. But the recent wave of federal and state actions is grounded in four main misconceptions.

First, it’s a mistake to assume – as many policymakers appear to be doing – that the gig economy represents most independent workers and to ignore the diversity of roles, industries and challenges across this growing workforce.

Contrary to click-bait headlines, workers on typical “gig” or “on-demand” platforms as a main job comprise only a tiny fraction of the overall independent workforce. It includes a diversity of roles including freelance creatives (musicians, writers) and professionals (translators, software developers); high-skilled consultants; contractors such as electricians and carpenters; and over 120 other types of solo, self-employed roles. 

Indeed, a recent IRS study using tax data found that industries with the greatest share of independent contractors are “professional, scientific, and technical services,” followed by “health care” and “other services” (repair and maintenance, civic and religious organizations, etc.). All three of these industries have seen the greatest growth in the number of independent contractors hired since 2001. Using survey data, the Freelancing in America 2019 report found that the top occupations with the greatest shares of freelancers are Arts & Design, Entertainment, Construction, Architecture/Engineering and Computer/Mathematics. 

This hardly paints a picture of “the Uber economy.” Indeed, in a different study using tax data, IRS economist Brent Collins and co-authors found that even after including many different gig platforms for labor services (far beyond just Uber, Lyft and Doordash), this type of worker constituted only 8.6 percent of the independent workforce. 

Second, the majority of workers using online labor platforms are using it as a supplemental, not a primary job. Collins’s tax study concludes, “we find that the exponential growth in labor [online platform economy] work is driven by individuals whose primary annual income derives from traditional jobs and who supplement that income with platform-mediated work.” This is corroborated by several other studies, including one by the Economic Policy Institute.

This should mitigate some concerns, since a large share of online platform workers should already have access to employment-based protections through their traditional jobs.

The third misunderstanding is that large companies are primarily to blame for the growth of independent contractors. According to tax data, the increase in usage was fastest for small and low-wage businesses (fewer than 20 employees), followed by median firms (20-100) and lastly by large firms (more than 100). This is important to highlight because regulations and restrictions on independent workers will be far more costly and burdensome for small businesses than for larger companies.

The last misconception is about the preferences of independent workers. In my review of 14 surveys, the unanimous consensus is that most independent workers prefer non-employment arrangements, even when independent work is their main job. Most (80 percent) would like access to flexible, shared or portable benefits, which are not tied to any particular job or employer.

Independent workers may look different in specific industries or cities, rightly reflecting the diversity of the workforce. For example, in contrast to aggregate studies of ridesharing drivers across the country, a 2018 study found that most ride-sharing drivers in New York City (NYC) were primary earners. NYC drivers were unique in many other ways, and as such, the city created a targeted regulation to address specific problems that don’t apply everywhere.

This type of local and targeted solution stands in contrast to California’s heavy-handed (and increasingly discredited) AB5 and the PRO Act, which ignore the diversity of the independent workforce. This is also why AB5 backfired across California: After media profiles highlighted job losses across the creative and professional freelance community, 53 additional jobs were later exempted from the rule.

Designing smart solutions for independent workers starts with understanding that the workforce is diverse. Therefore, many one-size-fits-all solutions will be prone to problems similar to what we’ve seen with AB5. Instead, specific reforms to address only targeted problems, likely on the local or industry level, will have fewer negative consequences. 

Liya Palagashvili is a senior research fellow at the Mercatus Center at George Mason University. 



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Maura Healey approves gig economy ballot question but fights idea in court

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“We better be able to walk and chew gum at the same time.”

Jessica Hill
Attorney General Maura Healey remains in a dichotomy after approving a ballot that would make gig economy workers independent, but continues to fight against Uber and Lyft in court to make drivers employees. Jessica Hill / AP

On Sept. 1, Attorney General Maura Healey gave the go-ahead to a ballot question that, if approved by voters, would maintain gig workers, such as Uber and Lyft drivers, as independent contractors.

At the same time, Healey and her office continue to spearhead a lawsuit against Uber and Lyft that accuses the rideshare companies of denying benefits to workers — whom she believes should be classified as employees, not contractors, under Massachusetts law.

On GBH’s Boston Public Radio segment “Meet the AG” Tuesday afternoon, host Jim Braude asked Healey to clarify the two simultaneous actions.

“We better be able to walk and chew gum at the same time,” Healey said. “Under the state constitution, there’s a process that allows regular folks to go ahead and get things on a ballot for a vote, and that happens every year … There may be litigation, there may not be litigation, but that’s just the hat that I wear as attorney general.”

Healey noted that her job is to review the ballot question’s language and to see whether or not it satisfies the legal requirements to make the ballot, regardless of her personal preference.

The ballot question garnered much attention in recent months as supporters — including a coalition of app-based businesses like Uber, Lyft, DoorDash and Instacart — argued that by keeping workers as independent contractors, the workers would be able to have more freedom with their job and set a minimum earnings guarantee. 

Opponents of the ballot question — like Healey — have said that it would continue to allow gig economy employers to provide less security for those who work for these companies. Throughout the pandemic, these companies have seen pushback from both gig economy workers and users on the treatment of employees. 

“As the economy grows, and work and the type of jobs change, there’s something they have to abide by,” Healey said. “We need to continue to treat workers fairly in this country, we need to make sure they’re not exploited.” 

Healey’s lawsuit, which was first announced in July 2020, asserts that rideshare drivers and similar workers should qualify as employees rather than independent contractors under Massachusetts Wage and Hour Laws.

In the lawsuit, Healey said her fair labor team determined that, under state law, gig workers should have access to minimum wage, earned sick time and other benefits and labor rights an employee would have. In March, the Suffolk Superior Court denied Uber and Lyft’s motion to dismiss Healey’s lawsuit. 

“Yes, gig workers and the gig economy are super convenient for all of us as consumers, right. There’s a price for that. And as we move forward with this gig economy, certain principles have got to abide. That’s why we have employment laws here in Massachusetts, and that’s why I’m in court against Uber and Lyft,” she said.



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This futuristic gig platform is owned by workers who keep 100% of earnings – The Hustle

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Five basic but essential steps to help take your side gig to the next level

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The pandemic isn’t crushing the entrepreneurial spirit. It’s fuelling it.

People normally tied to a desk or working double shifts used lockdown to launch side hustles, often out of necessity. And some have turned those side gigs into full-fledged businesses.

According to the U.S. Census Bureau, 427,842 new business applications were filed in August 2021 alone. That figure was 288, 026 in August 2019.

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While a side gig can be spontaneous, growing a legit business requires research, planning and organization. Otherwise, your fledgling enterprise could crash and burn in a couple of years.

These basic but essential steps can help you take things to the next level and give your new venture a shot at staying power.

CHOOSE A BUSINESS STRUCTURE

There are six common types of business entities: sole proprietorship, general partnership, limited partnership, C corporation, S corporation and limited liability company. The option you choose determines how your business is taxed, as well as who is financially responsible if your business is sued.

Entrepreneurs often default to sole proprietorship because it’s the easiest, but it’s also the riskiest, says Nellie Akalp, CEO and co-founder of corpnet.com, a document filing service that helps streamline the business formation process for entrepreneurs.

“There is no registration required nor are there corporate requirements,” Akalp says. But “there is no legal separation from the company, so the sole proprietor is personally responsible for any debts or liabilities.”

Registering as an LLC or corporation is more expensive and requires more paperwork, but it shields your personal assets from lawsuits.

OPEN A BUSINESS BANK ACCOUNT

Mixing business and personal finances can get messy, especially when it comes to filing taxes or securing a business loan. Open a business checking account to keep business income and expenses organized and easily accessible.

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Look for a business account that has low or no monthly fees and fits your business needs in terms of transaction and deposit limits.

A business credit card can also help you track expenses and identify tax deductions. Plus, you can earn rewards, like cash back on gas, office supplies and business consulting services.

UPGRADE YOUR BOOKKEEPING

No more manual spreadsheets or shoeboxes full of receipts; scale up to an accounting software that can do some of the heavy lifting for you, like tracking cash flow, managing invoices and generating reports.

Expect a learning curve with any new system, but know that it will help your operation run more smoothly. The right accounting software can also give you deeper insights into your business and help you identify weak points and opportunities to save money.

“Accounting is the language of business, so invest time and money into understanding how to do your books,” says Danetha Doe, founder of Money and Mimosas, a financial education platform for independent contractors, freelancers and small-business owners. “As a business owner, learning how to manage your company’s finances, read profit and loss statements, and understanding cash flows will make you a better entrepreneur.”

SPELL OUT YOUR BUSINESS PLAN

Your side hustle may have started organically, but turning it into a full-fledged business requires research and planning.

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Sketch out short – and long-term goals for your business, along with a sales plan, financial projections and potential roadblocks. Be realistic, set specific targets and spell out how you plan to reach them.

Building a business plan gives you a road map for how to grow your business. It also shows lenders you’ve done your homework should you need to secure a business loan.

Need help with your business plan? Turn to your local Small Business Development Center. These outposts are run by the U.S. Small Business Administration and offer free business consulting services.

INVEST IN PROFESSIONAL HELP

Entrepreneurs, by nature, wear many hats. But you don’t need to wear all the hats.

Outsourcing some aspects of your business frees you up to focus on other things, like customer service or product development.

Not hip to social media? Consider hiring someone to build and manage your business’s presence on Instagram, TikTok and the like.

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Do tax forms make your eyes cross? Invest in a certified public accountant to file for you.

“CPAs may be more expensive than doing taxes on your own, but it will be done right,” says John Pham, founder of The Money Ninja, a personal finance website. “Plus, they will maximize your tax deductions, which will most likely give you a higher return than the cost of a CPA.”

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