The Challenge of Misclassification in the Gig Economy

According to a 2016 Pew Research survey, some 24% of American adults have used some sort of digital commerce platform to earn money. This approach to earning a living is considered part of the gig employment phenomenon. In a 2016 study conducted by Harvard’s Lawrence Katz and Princeton’s Alan Krueger, 16% of American workers work for a temporary help agency, contract as independent contractors, or hold an on-call position. Current trends anticipate the gig economy to comprise more of the workforce in the future. In this issue of Astronology®, we look into the recent trend of gig employment and a critical challenge surrounding it.

In 2015, the Economic Policy Institute (EPI) reported that workers misclassified as independent contractors had grown considerably. Also stated in the report was that “New ‘sharing economy’ [also known as gig economy] businesses create cause for concern about misclassification because it is unclear how ‘autonomous’ these workers really are.” The report further expresses, “Employers who misclassify avoid paying payroll taxes and workers’ compensation insurance, are not responsible for providing health insurance, and are able to bypass requirements of the Fair Labor Standards Act, as well as the 1986 Immigration Reform and Control Act.”

A direct result of this misclassification is gig workers being forced to pay the full ACA tax or purchase their own health insurance. However, these costs may not be within their gig incomes. These conditions have given rise to lawsuits alongside the rise of gig-like jobs. For instance, Lyft recently settled a $27 million class-action lawsuit brought by drivers seeking to be classified as employees. Currently, Uber is in court for a similar class-action lawsuit. In light of this, the next question to consider is if labor laws will ever catch up to the rise of the gig industry.

Some employers have lobbied state legislatures to assist in legal coverage. In response, 28 states have legalized ride-hailing services, such as Uber and Lyft, labeling their workers as independent contractors. In Arizona, all workers using online labor platforms for work are considered independent contractors. This means that, while workers will find it hard to file successful claims for state-run benefit programs, gig workers still retain the right to sue over benefits and protections owed to employees under federal law. In New York and Washington, portable benefits, an encompassing benefit program designed for independent workers, are being considered.

As the workforce continues to change and more independent workers comprise our labor force, it will be important to see how legislatures continue to react. Do you work for an organization that supports or has some form of independent workers? How large a part of your organization are gig workers? How does your organization support gig workers? Please share your thoughts in our comments section below!