Friday, May 24, 2024

McHugh David: The labor battle over the Independent Contractor

by BIZ Magazine

In recent years, the independent contractor (IC) distinction has become a more popular career choice.

Quickly explained, ICs are laborers who usually are paid directly in cash, and are not issued a W-2 or W-4. Instead, whomever paid them (over a certain dollar amount) must issue a 1099 to both the IC and the government.

Any direct consumer business done by the IC, and subsequent direct payments, must also be reported.

This election, the fate of the IC may yet be determined after a fight began over the designation in California.

There, a law was passed that stated any laborer working for a specific company, doing daily work that the company was purposed for, should be classified as a W-2 and would then be subject to health benefits, if any were offered by the company, and subject to unemployment taxes.

Presidential hopeful Joe Biden (Democrat) has stated he will go on the offensive, should he be elected, against companies that mis-classify employees to avoid such taxes.

Among other benefits.

The argument has gone back-and-forth since passage, with legislators in California eventually exempting certain employees of certain types – including journalistic stringers, if you must know.

One of the main arguments for exempting some of these workers was the lack of necessity for them to be full time – they existed to fill a certain void, at certain times, but otherwise were unneeded. In the case of a newspaper, for instance, an individual may be needed for one football game, one day of the week and accepts cash payment for said services, more often than not they need no benefits for such an action and have chosen to accept the liability that comes with it.

This is the purpose of the IC and seems to be widly accepted in the United States, and has helped give people a certain employment that offers a lot of freedom (and has helped the unemployment rate, even during the Obama Administration).

But the battle in California took its toll on entities such as Uber, UberEats, and other food delivery and ride-sharing programs. Many were laid off as those companies were forced to move employees to W-2 payees. Those companies have since sued the state.

Presidential hopeful Biden’s argument is that, in his opinion, these companies are trying to avoid paying for the proections that they are supposed to afford to their laborers.

It’s a true statement, on it’s face, but it misses the nuance and inherent risks these companies take when utilizing IC labor.

First and foremost, laws that govern ICs state that they have a choice – they don’t have to work. Compared to a W-2 worker, who is paid to show up and do the job or risk termination. ICs simply accept the job if they choose and work with it to the best of their ability.

So, some nights you may see a market packed with Uber drivers, another not. That’s the risk of utilizing an IC, but at the same time Uber couldn’t exist at the right rates or availability utilizing full-time drivers – the model wouldn’t support it.

Ultimately, they’re running the risk of not having any drivers on certain nights if the demand just isn’t there, or if no one feels like driving.

There is an underlying issue here of the Democrat push to make sure everyone is paying in their taxes. It’s to be expected and, truth-be-told, the IRS has admitted difficulty in tracking 1099 taxpayers full tax burder – especially if they have expensees.

But acceptance of lack of health benefits as well as unemployment benefits comes with the territory of ICs, most individuals in that market are working for the freedom to work when they want, and how they want. They understand the risk of not working for a particular company full-time.

Are there certain firms that utilize ICs that should probably be working full-time as W-2? Sure, Exxon (pictured with this story) uses a ton of IC labor to take care of jobs that should probably belong to full-time labor but are farmed out due to specialty requirements (valve replacement and maintenance, for instance) or seasonal labor (turnarounds).

Should Joe Biden attack Exxon? No, those ICs have been working those jobs for years and know the risk of not being a full-time employee and paying into those benefit pools.

But that’s just it – they made that choice.

Should there be a requirement for firms to issue a simple form that informs the IC they are exempt from certain benefits? Perhaps, not everyone is in the know.

But if California is any indicator, attacking IC labor can have devastating effects on local markets.

Dear Democrats, don’t do it – especially not here in Louisiana.

McHugh David is publisher of the Livingston Parish News.

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