Tom: You are here this morning to talk about the growth of freelancing, correct?
Mellody: I am, Tom. One of the huge stories that has emerged in the wake of the great recession is the so-called gig economy. Fueled by our ability to connect through technology and the changing labor market, this marketplace of jobs that exist outside the office setting has exploded. The New York Times notes that over 15% of Americans are freelancers, and Time Magazine estimates that nearly 45% of Americans have participated in the gig economy at some point!
But as with any disruption in the labor force, new issues are bubbling to the surface as the lines between the traditional employer-employee relationships and these new roles get blurred. We have seen Uber and its drivers go to battle lately, as the company fights to ensure that its drivers remain contractors rather than employees. This morning, I want to talk about this issues from the employee perspective to make sure our listeners have the full story when it comes to the freelance economy.
Tom: Great. To start, give us an idea of why this economy emerged so rapidly.
Mellody: As I mentioned, technology has played a key role facilitating the growth of freelancing, allowing people to connect and find opportunities easily, and to work remotely. But it has also been driven from the employer side, as companies push the limits of freelancing. For companies, it is all about the benefits. If legally allowed, many businesses would hire their workers as independent contractors, because they could avoid paying for costly fringe benefits – health insurance, retirement and leave – as well as the employer’s share of payroll taxes. Hiring workers as contractors also lessens their legal responsibility and their liability. These are the two drivers of this trend.
Tom: what is the difference between an employee and a contractor?
Mellody: It can get a little complicated, but the two key factors are whether the worker offers their services to the general public, and whether the employer has control over the worker’s methods and time. If the employer determines when, where and how you work, sets employee hours, provides the equipment necessary, and pays the worker by the hour, week or month, and can fire the worker at will, then the worker would generally be classified as an employee.
On the other hand, a worker is usually classified as a contractor if they work on their own premises, are paid by the job or by commission with the risk of profit or loss, can work for multiple customers at any given time, and offer their services to the general public. Additionally, when under contract, then the independent contractor cannot be terminated at-will.