Employees enjoy various legal and financial protections: minimum wage and overtime rules, employee benefits (health coverage; retirement savings), unemployment insurance and workers’ compensation, and various anti-discrimination laws. Independent contractors have virtually no legal or financial protections (in some states they can opt in for workers’ compensation).
Should there be legal and financial protections for independent contractors, given a prediction that within the next five years or so about half of the entire workforce will be independent contractors?
Government protection versus oppression
I’m loathe to invite new government regulation. All too often government regulation results in overkill, costing businesses untold expense and time without the meaningful benefits that had been intended (think Obamacare).
But there can be some protections extended to independent contractors without the need for additional burdens on businesses. These may include:
- Universal access to workers’ compensation. States can allow independent contractors to buy this coverage (only a limited number of states currently allow this).
- Voluntary withholding. While mandatory withholding of income taxes from payment to independent contractors would be burdensome to businesses (in fact a mandatory withholding rule that had been created for federal contractors was repealed before it could take effect), a voluntary system similar to that used for Social Security benefits and certain retirement payments could be adopted. Payors would not be required to offer withholding but could agree to do so if the contractor requested it (for payors that use payroll providers, the cost for the addition of an independent contractor would be nominal, but even this could be shifted to the contractor). Withholding would help independent contractors pay their income and self-employment taxes without having to file estimated taxes.
Dependent contractors
A recent Wall Street Journal article discusses a new category of worker (in addition to employee and independent contractor): dependent contractors (those who work entirely or primarily for a single company). Referencing a 2005 ruling from the National Labor Relations Board, the article notes that countries such as Canada and Germany provide specific protections for workers who are economically dependent on a single company.
If there were a way to create a legal definition of dependent contractor (perhaps working a minimum number of hours for a single company), then many benefits enjoyed by employees could be extended to dependent workers without a lot of new laws or costs to companies. These added benefits could include the ability of a dependent contractor to opt for coverage under the company’s health care plan (by paying for it) or joining the company’s 401(k) plan (by paying for it and without requiring any company contributions).
Conclusion
To date, discussions by companies and the focus of government on independent contractors has related solely to distinguishing them from employees. Given the changing landscape of the workplace, there needs to be a new discussion about the legal and financial protections for independent contractors.
