Why does the US have it in for gig workers?

The US seems to have it in for gig workers and those who use them.

California – the fifth-largest economy in the world – has significantly curtailed the ability of companies located there to hire independent contractors and freelancers in lieu of employees. The US Department of Labor has issued updated rules that address worker classifications, which have forced more companies to reclassify their independent contractors as employees in order to be in compliance. New rules from the Internal Revenue Service will now require payment-processing firms to provide additional reporting on the payments made on 1099 forms, the document commonly used to report a freelancer’s earnings.

The most recent attack against gig workers comes from the IRS. This past December, a federal court allowed the agency to go after a digital platform called JustAnswers, which pays freelancing doctors, lawyers and other professionals fees as independent contractors for their expert services on “information requests”.

“The gig economy has grown in recent years and, with it, the concern for tax-compliance issues has increased,” said David Hubbert, the deputy assistant attorney general of the justice department’s tax division, in a public statement. “We will use all the tools available to us to ensure that no matter how US taxpayers earn income, they are properly reporting it and paying their taxes. Those who choose to be on the forefront of the gig economy must be aware of, and abide by, all their tax obligations.”

Some have wondered: why all the fuss? Why go after these little gig workers instead of billionaire tax dodgers? as one writer points out.

There’s no argument that the gig economy has surged dramatically, particularly since the pandemic. More than 20m new businesses have launched since 2020, the great majority of those representing side hustlers, independent contractors and freelancers. According to data reported in Forbes, an estimated 64 million Americans, representing 38% of the US workforce, did freelance work in 2023, which is up by 4 million people over the previous year, and contributed almost $1.3tn in annual earnings to the US economy.

Is the IRS that fearful over the loss of tax revenues? As a business owner, I don’t pay employer taxes when I hire freelancers. But the freelancer is responsible for paying a “self-employment” tax when they file their tax returns, so if they’re doing what they’re supposed to do, there shouldn’t be much difference. Most states have similar tax arrangements. If a taxpayer fails to report those earnings, then that’s on them. They’re breaking the law and risk penalties or even prison.

Some have blamed the big union lobby, which has forced the hand of state and federal legislators into passing new rules forcing companies to reclassify more freelancers as workers in order to make them eligible for union membership. The supporters of this tactic say that they’re making it possible for independent workers to receive all the rights, protections and privileges of an employee as well as much desired benefits like health insurance and retirement plans.

I get it, and let’s be honest. Most business owners I know – myself included – prefer using freelancers as opposed to hiring employees. Why? Because we’re able to hire and fire them as we please and don’t need to worry about things like healthcare, retirement, unemployment insurance, workers’ compensation, paid time off and all the other responsibilities that come with having employees. If one of my contractors isn’t doing a good job, I just stop using them. That’s not so easy when you’ve got employees. Make no mistake – freelancers have fewer protections in the workplace.

But this is a two-way street. Most freelancers I know and work with like their independence. The Freelancers Union – which advocates for rights and protections for the freelancing community – has reported that although freelancers “feel anxious about all they have to manage, they also have a better work-life balance with more control over their own destiny and schedule, resulting in less stress and better health” and that “freelancing gives them the flexibility they need because they are unable to work for a traditional employer due to personal circumstances, such as health issues or childcare needs”.

So why all the fuss about freelancers? Why do governments have such a bug up their butts about them?

It’s about control.

When employees are on the payroll of a company, their information is easily gathered and reported to the government. And if the reporting isn’t done correctly – or at all – the government has an easier target to go after: the employer. Most employers don’t want the cost or pain of having to deal with a government investigation so they comply. And all of their service providers – the accountants, payroll companies and insurance firms – are happy to readily supply whatever information the government needs to make sure that taxes are being collected and rules are being followed rather than losing their license to operate.

But now there are 64 million freelancers out there and there’s no way the IRS or Department of Labor can track their activities. These government agencies can pass all the rules and laws they want. They can make examples of bigger offenders. They can issue public statements and press releases to warn, threaten and scare the Etsy sellers, artists, programmers, graphic designers and photographers into making sure they pay their taxes or else!

But government officials don’t want to admit the truth, which is the government is just not able to control this massive group.