Have a Side Gig? It’s About To Change — Here’s What You Need To Know
Written by
Aja McClanahan
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T. Woods
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The side gig economy has helped millions of Americans make ends meet by assisting cash-strapped workers bring in extra money. The advent of internet-based side hustles has spawned an entirely new way of earning income outside of a salaried position. According to Reuters, though, the Biden administration could soon unveil a rule that makes independent work arrangements more difficult or even nearly impossible.
However, in recent years, many state legislatures have clamped down to challenge the classification of gig workers, contractors and freelancers, essentially attempting to reclassify them as employees or workers who may be eligible for some benefits that employees would typically have.
The Gig Economy Under Attack
This time, the Biden Administration hopes to imitate some states’ approach to reclassifying workers into a more broad-sweeping rule. The effects could be far-reaching if the U.S. Department of Labor rule is enacted. For some contractors and gig workers, it may mean increased job security and access to benefits. However, other workers may face less job flexibility (the main draw of gig economy roles), as employers grapple with the costs of reclassification.
The ABC Test
Most state legislation to classify workers and employees or contractors is based upon the ABC Test, the common law test, or a modified version of both methods. The ABC Test impacts a worker’s eligibility for benefits and a minimum wage.
The test contains three criteria to determine a worker’s classification as an independent contractor:
Part “A” says that the worker is free from the control and direction of the hiring entity concerning the performance of the work.
Part “B” requires that the work provided is outside the usual course of the hiring entity’s business.
Part “C” stipulates that the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.
Workers must meet all these conditions, or they’ll be considered employees, requiring employers to provide corresponding benefits and treatment.
Using the ABC Test, qualifying for independent contractor status can be difficult for workers in trades like the creative arts or those providing app-based services like Uber, Lyft or Doordash.
State Legislation and the Gig Economy
The ABC test is not new. In fact, the test has a long history rooted in 20th-century struggles over worker rights and protections. By the mid-20th century, many states had already adopted this test in an attempt to fairly and reasonably determine workers’ status.
Though many states use the ABC test, it’s important to know that not all states enforce it equally across all industries — as there are many exceptions and exemptions.
For example, California has been in the news most recently due to expanding the ABC Test to cover app-based gig workers such as those working for companies like Uber, Lyft, and DoorDash under California Assembly Bill 5 (AB5.)
The bill went into effect on January 1, 2020, and caused a major uproar and pushback from many gig workers, including freelance writers, journalists, photographers and other trades.
In September 2020, the California state legislature passed AB2257, which exempted several job categories from AB5. Finally, in November of 2020, California voters approved Proposition 22, which legally designated drivers for app-based ride-hailing and delivery services as independent contractors.
Though the final outcome seems to keep most contractors and freelancers safe from reclassification in California, there are certainly freelance professionals in other states, like Indiana, Massachusetts, Alaska and West Virginia, who are still routinely denied contract work due to the ABC rule.
How the U.S. Department of Labor Rule Could Affect Gig Workers
Reutrs noted that although the specific language in the rule hasn’t yet been revealed, it’s expected to “Make it more difficult for companies to treat workers as independent contractors rather than employees that typically cost a company more,” an administration official said.
If the rule follows the patterns of many state legislatures on the matter, it’s possible that there could be reasonable exemptions and ultimately pose no threat to most gig workers, freelancers or independent contractors. However, if the goal is to truly classify workers as contractors more difficult, in full force, the rule could put many out of lucrative contract work.
The Reuter’s report cited a study claiming that employees can cost companies 30% more than independent contractors. As a result, independent contractors may have little chance of obtaining employment with a company unable to retain them as contractors.
Here’s something else to keep in mind: The pending U.S. Department of Labor rule is just that — a rule. A rule is not a law. In addition to this, the rule is likely to face some legal challenge if it’s deemed unconstitutional.
Although there’s precedent in many state legislatures that have enacted and enforced similar laws for gig workers, it’s still a little too early to tell the extent of the rule’s potential effects on all independent work arrangements.
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