How Many Hours Can an Independent Contractor Work

How U.South. companies impairment workers past making them independent contractors

Being classified as either an employee or an independent contractor can determine whether workers in the United States have admission to reliable pay, benefits, and protection from discrimination. Intense fights are cropping up across the country as companies try to argue that their workers are merely "independent contractors" and practise not authorize for many protections nether U.Southward. labor constabulary, while workers and some courts say the contrary, that some workers are actually employees. Many "gig economy" companies, such as Uber Technologies Inc., base their business models around misclassifying their workers as self-employed. Billions of dollars in worker pay is at stake.

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How U.S. companies impairment workers by making them independent contractors

Economists and policymakers akin rightfully praise individual entrepreneurs who strike out on their own, and they encourage companies to embrace innovation. However, the vast majority of self-employed independent contractors are cypher like the legendary small businessperson engaged in launching a newfangled production or service. Instead, big companies take found that they tin can use contained contracting or self-employment status in U.South. labor law to lower workers' pay and benefits, while maintaining significant control over how those workers perform their jobs.

This issue brief delves into how contained contractors are defined by law and understood by economists, while demonstrating why it's rarely a adept thing for most workers to be forced to work as contained contractors due to lack of good pay, lack of bones benefits, and lack of piece of work-time independence.

Who is an independent contractor?

Traditionally, contained contractors are paid a committee per chore they complete for clients, maintain meaning command over how and when they perform their tasks, and are not integral to the business of the companies or people for whom they work. They tin can besides be referred to every bit freelance workers. Traditional examples of independent contractors include plumbers, hymeneals photographers, and some lawyers and consultants. They run their own professional person operations, contract with many different families or businesses, negotiate mutually amusing contract terms, are free to complete their work without control past their customers outside of those contracts, and are not integral to their customers' business models.

Contained contractors are a subset of people who are "self-employed," which includes contained contractors, small business owners, and part-time hobby or craft merchants. The terms accept slightly different meanings for economists, taxation professionals, and lawyers, which are not relevant here.

A recent written report by the U.South. Bureau of Labor Statistics and academic research by Lawrence Katz of Harvard University and the late Alan Krueger of Princeton Academy, show that between 6.9 percent and 9.vi percent of all workers are independent contractors, or 10.five million to 15 million workers.

Information technology is largely impossible to tell how many of these workers are traditional independent contractors and how many are misclassified depression-wage workers, though Katz and Kruger practise notice that from 2005 to 2015, low-wage workers experienced a larger ascent in independent contracting than high-wage workers. Katz and Kruger believe that employment in independent contracting rose by about 30 percent from 2005 to 2022 and this increase occurred while the rate of truthful entrepreneurial activity remained mostly stagnant. U.S. Department of the Treasury economists Emilie Jackson, Adam Looney, and Shanthi Ramnath corroborate this finding using tax data. They find that self-employment has risen by nearly 30 percent since 2001 and nearly all of that increase is due to a growing number of independent contractors and misclassified workers. The Agency of Labor Statistics believes the increase has been smaller.

Why is it bad to exist an independent contractor?

First, sometimes it isn't bad. Plumbers, independent lawyers and consultants, and fifty-fifty wedding photographers can earn a proficient living as independent contractors while retaining freedom over how they operate their business. But in that location are many reasons why being an independent contractor might non be advantageous for most workers, specifically when:

• They are not earning as much money equally traditional employees would
• They are denied crucial workplace rights such as 40-60 minutes work weeks, the right to organize, protection from discrimination, and employer-provided health benefits
• They are not actually independent and are not really able to make up one's mind where, how, and for whom they work

Overall, too many workers fit that clarification. These kinds of workers endure from lack of good pay, lack of decent benefits, and lack of meaningful work-time independence, compared to plumbers, real estate agents, and other professional person independent contractors.

Lack of good pay

Recent data-driven research shows that low pay is a serious issue for most independent contractors. Treasury economists Jackson, Looney, and Ramnath institute that the universe of self-employed people and independent contractors is divided between a very prosperous upper crust and a big body of workers who are non very well-off. At one extreme, the average person who is a partner at a firm earned $243,000, while a gig economy worker made only $37,000 at the other. (Revenue enhancement information is generally the best source for research on income. But at that place are still problems with under-reporting of income, especially among the self-employed, which can impact results.)

And it is not just that low-skill workers select into low-paying jobs. My research on the tax returns of Washington, D.C. residents shows that self-employment exacerbates existing income inequality in the local labor marketplace. Depression- and middle-wage workers who go self-employed meet lower take-home pay than they could accept expected if they remained just every bit wage earners. People in the lesser 75 percent of income-earning Washington residents (making less than about $83,000 annually), earned $3,450 less in 2022 than their counterparts who remained just wage-earners. (See Figure 1.)

Figure 1

In contrast, the city'due south high earners see a wide range of earnings outcomes when they become self-employed relative to what they could have otherwise expected. They generally see a large increment in income, but a small-scale minority run into very big initial declines as their businesses get off the ground. On boilerplate in 2014, those who were already high earners and became self-employed increased their incomes past $25,000 above what they would otherwise take expected after two years.

This divide occurs because high-income self-employed workers are much more probable to be consultants, professionals, or traditional entrepreneurs, and thus have the corresponding human majuscule, social networks, and existing wealth to successfully strike out on their own. Being already wealthy predisposes them to reap peachy benefits on average from going into business organisation for themselves. Further illustrating this divergence, the overall average income of cocky-employed people in Washington, D.C. in 2022 was $109,000, versus a median income of simply $49,000. These very successful people should not be thought of as representative of the entire population of independent contractors.

Uber drivers are a skillful instance of this phenomena. Uber'southward concern model is congenital on using independent-contractor condition to lower workers' pay and shift the costs and risks of doing business organisation onto drivers. While big-urban center taxi drivers earn between $12 and $17 per hour and taxi drivers industrywide earn $12.49 per hour, a recent study by Larry Mishel of the Economic Policy Institute finds that Uber driver take-home pay averages $10.87 an hour. Only afterwards factoring in that Uber drivers must provide for their ain benefits, Mishel finds that their hourly wage equivalent is merely $9.21 on average.

Mishel points out that those average wages are "below the mandated minimum wage in ix of 20 major markets, including the iii largest (Chicago, Los Angeles, and New York)," all of which have minimum wages to a higher place $10 per hour. This ways Uber would take to immediately raise driver pay if drivers were considered employees. And because these are averages, many drivers make fifty-fifty less.

As Uber and many of its defenders will reply, Uber drivers are usually employed exterior of the company and only rely on driving for part of their income. Only in no case does U.South. labor police permit part-fourth dimension workers to be paid less than the minimum wage only because they are part-time. No thing how many hours someone works, all workers are entitled to a baseline minimum wage per hour of work. That is, unless they are mischaracterized as independent contractors.

In short: similar many companies who rely on low-wage contained contractors, Uber uses the independent contracting status to rob drivers of the pay they would exist entitled to every bit employees, or indeed as traditional taxi drivers.

Lack of benefits

Contained contractors are treated under U.Due south. labor constabulary as cocky-employed. This ways they:

• Pay both employer and employee payroll taxes
• Are not covered by minimum wage or overtime laws
• Are not eligible for unemployment benefits
• Are non eligible for healthcare, retirement, sick fourth dimension, or family leave benefits
• Cannot form a union with other workers
• Are not generally protected by employment laws such as the Fair Labor Standards Act, the Family and Medical Leave Act, which guarantees unpaid time off and continued health insurance coverage around the nascency of a child and other circumstances, and the Employment Non-Bigotry Act, which protects employees from bigotry and harassment.

Workers are forced to give up nearly all the rights that U.S. police entitles them to when they work as contained contractors. Uber and the other prominent "ride-services" company, Lyft Inc., claim that restoring those rights by converting their independent contractors into employees would pose a serious risk to their operations. In trying to fend off a new proposed California state law that would crave companies to hire independent contractors as full-time employees, the two firms contend instead for vague rules and regulations that would enable their drivers to somehow provide these employee-benefits to themselves. They tout the importance of their drivers' flexible schedules, but there is no legal reason drivers tin't take both flexible schedules and the benefits of beingness an employee.

Lack of meaningful work independence

In return for giving up the entire suite of employee protections and benefits in U.S. labor police, all that most contained contractors receive from a visitor such as Uber and Lyft is generally imaginary work independence. Companies must give workers some amount of liberty for them to authorize every bit independent contractors, but it is in companies' interest to go along equally much control equally possible. For instance, companies routinely subject their contractors, command how they perform their job, unilaterally change pay structures, and forbid negotiation over pay. It is hard to imagine plumbers or lawyers operating under similar restrictions.

While "worker liberty" remains the principal justification given past companies and their allies for the independent contractor classification, the actual amount of freedom workers have is a subject of ongoing legal disputes.

In a blow to employers that rely on classifying their workers every bit independent contractors to avoid labor costs and juice profits, California'due south Supreme Courtroom ruled in 2022 that workers must be truly independent in order to qualify as self-employed. The court said that "businesses must show that the worker is free from the control and direction of the employer; performs work that is outside the hirer's cadre business; and customarily engages in an independently established trade, occupation or concern." This so-called ABC test would describe nigh traditionally self-employed people, simply clearly not contractors for companies such as Uber. This ruling applies in California only, and so far Uber and similar companies are not complying with the ruling. California's legislature is currently debating a bill that will formulate all or parts of the ABC examination into constabulary, which will force the companies to comply without further lengthy litigation.

In contrast, the National Labor Relations Lath recently ruled in a case similar to the California Supreme Courtroom case and reversed the Board'due south prior position on independent contractors. The NLRB held that drivers for SuperShuttle DFW Inc. are contractors despite being considered employees until 2005. Additionally, those drivers are "completely integrated into SuperShuttle's transportation system and its infrastructure," they can not negotiate the terms of their work, and "are prohibited from working for whatsoever SuperShuttle competitor." In her dissent, member Lauren McFerran sums upward how misguided the decision was by maxim "SuperShuttle's drivers are not independent in whatsoever meaningful manner, and they have little meaningful 'entrepreneurial opportunity.'"

Crucially, worker freedom is not something that companies can only give to contained contractors. Nothing stops SuperShuttle, Uber, or any other business from giving workers both the status and protections of beingness an employee and a flexible schedule.

Conclusion

High-income professionals enter self-employment under vastly different circumstances than low-wage workers, and this drives dissimilar outcomes in terms of earnings, benefits, and work-time flexibility. Professionals actually can act equally entrepreneurs and greatly amend their incomes while gaining greater work freedom. U.S. labor laws were designed to enable these types of professional person workers to declare themselves self-employed. In dissimilarity, low-wage workers are more likely to see wages and benefits stripped away when they become independent contractors, with little or no corresponding increase in autonomy.

U.S. labor history has been defined past conflicts amidst workers, employers, and the government over workers' rights to pay and benefits for over a century. Equally new technologies and business concern models are adult in the future of piece of work, these fights volition shift and policy needs to keep up. The federal government and other states should follow the lead of California'due south Supreme Court and recognize the fundamental power imbalance between contractors and firms. Strict rules on who can qualify as an contained contractor would restore pay and benefits to misclassified workers or else give them true freedom to pursue entrepreneurial activity.

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Source: https://equitablegrowth.org/how-u-s-companies-harm-workers-by-making-them-independent-contractors/

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