Rigging the gig economy: A proposed bill would lure freelance workers to sign away their employee rights for cash

Why would freelancers give up the fight for employee status for a few hundred bucks put toward health insurance?

Published November 29, 2016 9:58AM (EST)


Handy, a web-based home cleaning services company, thinks it might have hit on the solution to a problem vexing it and other companies that rely on freelancers instead of hiring workers: giving these independent contractors some cash annually to help offset the cost of health insurance.

The proposal in a draft bill that Handy has circulated in its home state of New York, according to news reports, would establish a system whereby participating companies that categorize workers as independent contractors pay the equivalent of 2.5 percent of a workers’ income into individual health savings accounts. In return, employees who enter into a deal like this would essentially accept their classification as nonemployees, shutting them out of any efforts later to sue for benefits like overtime pay or unemployment insurance.

A Handy spokeswoman declined to offer more details about the draft bill or its authors but lauded New York state’s efforts to actively pursue legislation to address the ongoing national debate about tech-oriented startups classifying their lowest-paid workers as self-employed free agents. Whatever legislation New York passes could wind up being a blueprint for copycat laws elsewhere.

“While other states are dragging their heels, New York has an extraordinary opportunity to be a true leader in this space,” Handy spokeswoman Alyssa Cass told Salon by email. “We expect there to be a lot of collaboration and iterations on the legislation. It is early days, but it is encouraging that the process is well underway.”

Cass says the 2.5 percent figure is just one proposal, suggesting there might be higher sums discussed by state lawmakers. Handy's cleaners in New York earn more than $20 an hour, Cass said, though half of them work only 10 hours a week or less, which means a 2.5 percent health stipend deposited into an individual account, would amount to about $800 a year for a Handy employee earning $33,000. That's less than a third of the cost of an individual silver plan on the state health insurance market, according to the Kaiser Family Foundation.

Labor rights advocates are dubious of this plan. Many say what employees lose in benefits as self-employed employees far outweighs what companies would contribute to offset. These workers lose mandatory employer payroll contributions like unemployment insurance or Social Security payments as well as discretionary perks like paid parental leave and accumulated paid time off. They also pay higher taxes to the Internal Revenue Service because the money is considered self-employment income.

The National Employment Law Project estimates that the typical employer saves 10 percent to 15 percent in labor costs by classifying workers as freelancers. Businesses can save as much as 30 percent of the cost of a worker if the company extends additional benefits to regular employees.

“The problem with this proposal is if these workers are not considered employees, the employees come out ahead, even with a very tiny contribution from companies like Handy,” Rebecca Smith, deputy director of the National Employment Law Project, told Salon. “But if you assume they are employees who are being illegally treated as nonemployees, it’s a terrible deal."

Such legislation would be a trap for these workers.

For example, if employees are forced to agree to accepting a small health care stipend they could also be signing away their rights to participate in employee-misclassification lawsuits that have been vexing tech-oriented companies like Uber, food-delivery service GrubHub and others. Uber in particular has been at the center of this controversy, and it’s currently fighting a widely watched class action in San Francisco that challenges the classification of its drivers as freelancers.

While employee misclassification has long been a serious issue for U.S. workers, the rapid growth of the gig economy (also known as the on-demand economy) has brought it to the fore.

Handy, a 4-year-old startup with operations in the U.S., Canada and the U.K., doesn’t technically employ house cleaners. Instead its business model is built on its web-based technology and a corps of independent contractors whom Handy charges a commission of as much as 20 percent of their earnings. Payroll is typically a company’s biggest expense, so any model that whittles down labor costs is naturally favored by employers and by their state and federal lawmaking allies. Meanwhile, the U.S. government has done little to rectify the problem, hitting these on-demand workers with higher payroll taxes (compared with their directly employed counterparts) while shutting them out of access to unemployment benefits.

For their part, gig economy workers have become more vocal about these issues.

On Tuesday, drivers for Uber and its rival Lyft were set to join nationwide protests by the union-backed Fight for $15 campaign, a movement that calls for raising the federal minimum wage from the current $7.25 an hour. This marks the first time independent contractors working for Silicon Valley firms have joined the 4-year-old labor movement that’s played a key role in boosting hourly wages in several cities and states.

“Since the election we’ve had so many groups of workers that have reached out to us,” Kendall Fells, a Fight for 15 organizing director, told Salon. “It wouldn’t surprise to see more of these gig workers reaching out to us in the coming months.”

By Angelo Young

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American Labor Freelance Gig Economy Handy Uber