It’s a shift that is anticipated to have a major impact on the US gig economy and on businesses that offer ride-hailing, delivery, and freelance services, among others.
This is the first step of what will likely be a lengthy process before coming to a determination. After a 45-day public comment process that started last Thursday, the final regulation (if it is approved) is anticipated to be published next year.
What is the Gig Economy?
The gig economy, which is sometimes also known as the on-demand workforce, generally relies on mobile applications or websites to link service providers and customers, and businesses also use these platforms to charge customers for these services. These platforms are often promoted as a means to provide customers with more options, convenience, and freedom in their everyday lives.
The classification covers a wide variety of services, including:
- ride-sharing services, where customers hire a person to drive them somewhere ;
- delivery services, where customers hire a person to bring them food or other items ;
- as well as personal services, where customers hire a person to perform creative or professional tasks like graphic design and web development ;
- and other odd jobs like furniture assembly and house painting.
The gig economy may provide people with flexibility and convenience as an employment choice. Workers may be able to combine their employment with other obligations like schooling, family obligations, other jobs, or hobbies. It also offers the ability to work when and how frequently they choose.
Some individuals decide to make their primary living via the gig economy. Others periodically work in the gig economy as a complement to their primary source of income as they transition toward retirement, or when they change occupations or careers.
Nevertheless, many in the industry are classified as independent contractors, and as such they’re not entitled to the employment benefits and protections of an employee. Not being required to pay these incentives can represent a large saving in overhead expenses to the employer, which is why the pending rule change could be very disruptive.
What Will Biden’s Proposal Mean for Independent Contractors?
According to the proposal published last Thursday, a business must classify those who are “economically dependent” on them for their main paycheck as employees instead of independent contractors.
By guaranteeing them the minimum wage, overtime pay, and reimbursement for transportation and certain other work-related expenditures, the proposed adjustments have been promoted as a blessing for many employees, especially some of the most vulnerable in the workplace.
There is some risk to consider in restricting independent contracting though, as it would potentially force certain businesses to recruit fewer people, thereby eliminating some positions. Companies would also have more authority over individuals who are treated as employees, and there would naturally be less flexibility offered to employees.
According to the Labor Department, before the final decision is made, it will (among other things) take into account whether employees have the chance to make more money or lose out if their positions are permanent, and how much influence an employer has over them.
Some economists believe that there will not be any advantage to the majority of gig workers, as for the most part, these jobs are supplemental and not treated as full-time positions anyway.
The United States is not alone in considering changes to the rules surrounding the gig economy, as there is a precedent being set around the world in recent times. On 9th December 2021, the European Commission (EC) announced a similar and long-awaited proposal containing rules to enhance the working environment of platform employees. The Directive intends to improve algorithmic transparency and fairness, and avoid employment misclassification.
In the UK, a Supreme Court Ruling in 2021 fell against Uber after a six-year battle in favor of a collection of drivers that were fighting for fairer conditions. The Court found that Uber should have been paying their drivers as employees, and since then, they now pay a minimum wage for the time that a driver is carrying passengers instead of a set fare per trip. They also now pay some entitlements, such as holiday pay, sick leave, and retirement contributions.
Is It Worth Investing in the Gig Economy Now?
The gig economy is understandably on shaky ground at the moment as it comes to terms with the possibility of an overhaul of the entire system. It’s important to remember though, that there won’t be any decision on the new proposal for a little while yet. If there’s enough of a challenge mounted by the main stakeholders in the industry, and there’s a huge incentive for this to happen, then it’s possible it may all be a moot point.
The threat of policy changes sent gig stocks tumbling after the announcement last week, with losses of more than 12% for Uber (UBER.N), more than 8% for Lyft (LYFT.O), and more than 13% for DoorDash (DASH.N).
Depending on what eventually happens with the proposal, the whole idea could see these companies struggle for some time, as it will undoubtedly discourage investors. This will then cost consumers who rely on services, and will potentially eliminate positions of employment available to workers at a time when many of the most vulnerable in the community needs them most.
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