Independent contractors and their employers regularly explore uncharted territory. With so many businesses now relying on the swelling gig economy, the National Labor Relations Board’s January decision to broaden the definition of independent contract work could create a ripple effect in the labor market. HR professionals should keep a close eye on what comes next to protect their companies and maximize the effectiveness of their workforces.
Fortunately, 2018 provided a sneak peek at the independent contractor trends of 2019. Industries have already gotten a taste of the freelancer-first world. Now, businesses need to follow those lessons to their logical conclusions and make the appropriate adjustments.
Consider the following trends in independent contract work and how they might affect your company:
1. The Growth of Gig Work
More than a third of workers in America participate in the gig economy, though many of those contractors keep regular jobs as well. HR departments should understand their companies’ business objectives and how contingent workers can help them achieve their goals.
Small businesses need to pay especially close attention. New research shows that small companies are now hiring more independent contractors than full-time workers. As the freelance workforce grows at triple the rate of the overall workforce, nimble businesses have a chance to get ahead of the curve on independent contractor management.
2. Uncertain Classifications
Last year’s Dynamex ruling in California, which made it more difficult for state businesses to classify workers as contractors, brought new heat to the important question of who is an “employee.” With the NLRB easing principles and state and local lawmakers enacting their own provisions, HR departments must stay abreast of relevant classification tests.
HR departments need to design flexible policies to maximize their current situations without putting their companies in difficult spots should existing laws change. The Dynamex decision solely addressed pay for California workers, but new challenges from unions and businesses will address a variety of topics. Benefits, responsibilities, liability, and more could all change in an instant. With so many parties jockeying for position in the contract work landscape, companies caught in the crossfire can’t afford to let their attention lapse. Consider partnering with an independent contractor compliance agency to make sure your company is always meeting ever-evolving regulations.
3. Evolving Tax Laws
President Donald Trump’s tax law, which took effect last year, provides a 20 percent tax deduction for independent contractors. However, the IRS still wants its cut. Workers who switch from being full-time employees to being independent contractors might not be eligible to claim the extra deduction without first proving their claim to 1099 status.
Drivers in Uber’s limousine service, for instance, remain self-employed in the eyes of the IRS. Remote employees and on-the-road salespeople might act semi-independently, but flexibility alone does not a contractor make. Employers must be exceptionally careful about the responsibilities they give employees who make the switch from W-2 to 1099 (or vice versa).
Put into context of the NLRB’s decision in January, new tax laws up the stakes. Companies have a bit more leeway about who is or is not considered an independent worker, but no foolproof checklist exists to separate gig workers from full-timers. When businesses classify workers in 2019 and beyond, they should have policies and procedures in place to define how independent contractors can be engaged — or partner with a company that offers independent contractor compliance services.
The independent nature of contract work means that much of the legal responsibilities will fall to the workers. However, just because contractors must track their own income does not mean companies are off the hook. Independent contract labor will continue to grow in prevalence and economic impact this year. Businesses that create successful, sustainable infrastructures to manage contract labor will enjoy a major advantage over those that take a “wait and see” approach.
Sara Jensen is the vice president of business development at Innovative Employee Solutions (IES), a leading nationwide employer of record that specializes in payrolling and contractor management services for today's contingent workforce. Founded in 1974 in San Diego, IES has grown into one of the city's largest women-owned businesses and been named one of its "Best Places to Work" for 10 years in a row.
Prior to joining IES in 2011, Sara served as director of distinguished events for the American Cancer Society. She also worked as a development resource specialist for the San Diego branch of nonprofit Social Advocates for Youth. A Washington native, Sara earned a Bachelor of Arts in communications from Western Washington University.
