A new federal proposal could totally overall the gig economy—and have a significant impact on all those involved.
- The U.S. Department of Labor announced on Tuesday that it is proposing changing who can be considered an independent contractor.
- “The Department believes that its proposed rule would reduce the risk that employees are misclassified as independent contractors while providing added certainty for businesses that engage (or wish to engage) with individuals who are in business for themselves,” says the Department.
- “That particularly affects gig economy leaders like Uber and Lyft, which save up to 20% to 30% on labor costs by classifying their workers as independent contractors, according to some estimates,” says Fortune.
- The Department is opening a 45-day comment period for comments that lasts until November 28.
Why it’s news
Changes in the federal government’s classification of contract work could affect the operations of major companies that rely mostly on contract services.
“The rule would make it more difficult for companies to classify their workers as independent contractors, leading to significant cost increases as those companies are forced to pay for things like minimum wage, overtime, payroll taxes, unemployment insurance, workers’ compensation, and sick days,” says Fortune.
Lyft released a statement following the announcement, calling the rule “similar to the approach the Obama administration used to determine employee status. This approach previously applied to Lyft and app-based companies and did not result in reclassification of drivers.”
For now, the company does not expect to reclassify its workers as employees and doesn’t think it will change the company’s business practices.
“App-based work, in particular, is fundamentally different from traditional 9-to-5 work. Nowhere else can you find the same minute-by-minute flexibility to decide when, where, and for how long you want to earn. This type of independence and flexibility is the primary reason people turn to app-based work in the first place,” says Lyft.
Critics of Lyft and other ride-share companies point out that these companies do not provide benefits or other necessities to people who chose to work full-time.
“‘Flexibility’ and ‘independence’ sound nice, but here’s the truth: When you have to work over 50 hours a week to make ends meet, when you have to weigh every hour that you don’t work against the lost income when you are one accident or illness away from financial ruin, flexibility and independence mean nothing,” says Lyft driver Mike Robinson.
Pew Research reports that 16% of U.S. adults earned money at some point through gig work and 31% call it primary work. About 60% of Americans think that ride-share drivers should be considered contractors while 35% prefer making them employees.