Business Leadership
August 22, 2019

California Bill Redefines Freelancer Status: How Staffing Firms Can Help Preserve the Gig Economy

Whatever you call it—the gig economy, the sharing economy, digital capitalism—it’s more than an outlet for side hustles. This modern iteration of commerce and alternative work arrangements, where the traditional structures of consumers and companies decouple, has truly given rise to a freelance economy. It’s not just burgeoning, it’s an indelible fixture that has reshaped many aspects of business. The present state of employment would have been hard to predict at the end of the 1930s, when Congress passed the Fair Labor Standards Act (FLSA). It was a contentious and hotly debated piece of legislation at its inception. And the provisions it continues to enforce have fallen under similar scrutiny throughout its lifespan, with lawmakers and businesses periodically attempting to introduce new ways to skirt or dilute some of the limitations it imposes. The issue has become more pronounced since the 1990s, with salaried work giving way to the momentum of freelancing and contracting. But a recently proposed bill in the California Senate could dramatically alter the current landscape.

A Blast from the Past

The origins of the U.S. labor movement can be traced back to 1607 when British planters in the Jamestown colony expressed a need for a growing batch of workers to help cultivate the crops necessary to sustain the influx of British and European expatriates. During the late colonial period, a relatively unrestricted wage-labor market arose among the artisan trades, eventually leading to the formation of guilds and associations that would evolve into local craft unions, such as the Federal Society of Journeymen Cordwainers, the Mechanics Union of Trade Associations, the Typographical Union, and the AFL-CIO.

Put in a different (and very simplified) context, the nation’s earliest settlers had essentially established a workforce full of freelancers. Artisans produced wares in exchange for other goods and services. The farmer fed the doctor, the doctor tended to the farmer’s ill, the magistrate provided legal support to the tailor, the tailor made clothes for the magistrate, and so forth. But work became more complex, monetary systems replaced barter and trade, and the freelancing artisans required stronger social safety nets. So, in some ways, we’ve gone back to the past and are experiencing a sort of renaissance related to proposal of deals like the FLSA. But with a 21st century spin.

Today, according to Upwork’s fifth annual “Freelancing in America” study, more than one-third of the U.S. workforce is engaged in freelancing. There are several other fascinating statistics in the report.

  • The population of freelancers, now numbered at 56.7 million, grew by 3.7 million over the past 5 years.
  • Americans spend 1 billion hours per week freelancing.
  • 64% of freelancers found work online, a 22-point increase since 2014
  • Freelancers indicated that they are 19 points more politically active than non-freelancers. More than 7 in 10 (72%) said they’d be willing to cross party lines to vote for candidates who support freelancer interests.
  • 70% of full-time freelancers participated in skills training in the past six months compared to only 49% of full-time non-freelancers.
  • Despite the fact that 77% of freelancers feel the arrangements give them better work-life balance, 63% expressed concerns about their long-term stability and anxiety over all they have to manage independently.

Freedom Isn’t Always Free

Julian Vigo is an author, professor, and filmmaker who specializes in anthropology, technology, and political philosophy. Her August 8 article in Forbes, titled “Virtual Freelancers And The Future Of Human Employment,” offers a well-rounded look at the transforming state of freelancing in the U.S. economy.

As Vigo observes, the market response to freelancing has been swift and welcoming, producing “myriad companies which hire online workers from Fiverr to with some in this industry predicting that salaried jobs will soon be a thing of the past.” Freelancing clearly benefits businesses with an on-demand pool of skilled professionals who operate outside the financially prohibitive confines of mandatory leaves, paid sick and vacation time, health coverage, workers’ compensation insurance, unemployment benefits, and other statutory costs.

In exchange, freelancers enjoy the autonomy that traditional employees lack. Vigo also points out that freelancing helps women return to the workforce from absences (e.g., raising children or caring for relatives) when scheduling flexibility is necessary. She further cites the lucrative opportunities that online education platforms have created for freelancers:

One recent boom in online freelance work has been in the field of tutoring which now includes Hong Kong startup Snapask and Cluey Learning based in Australia, among dozens of other online tutorial companies which rely almost entirely on the freelance workforce. While many argue that online tutoring is changing the face of learning, it is also changing how teaching is performed and how tutors are now self-stylized gurus working from the convenience of their home while, in some cases, being handsomely paid.

Full-time employment, in the eyes of many workers today, presents challenges that they believe freelancing overcomes. “Struggles for pay equity that women face and the need for workers’ compensation for blue-collar jobs are just two of the areas that make salaried employment undesirable for some,” Vigo explains.

But as history consistently teaches us, freedom seldom comes without its own unique price tag. “What this means,” Vigo writes, “is that workers, while perhaps having more independence, are caught within machinery where certain rights are virtually non-existent.” Some freelancers have grown increasingly concerned about the rigors of maintaining their own micro-businesses and incurring the financial burdens associated with health costs, unemployment between projects, lack of pensions, and other protections extended to traditional employees.

Some companies have stepped up to help address and mitigate these worries. It’s an effort most likely intended to benefit freelancers in order to keep the boons of freelancing open to businesses— the proverbial ”win-win” situation.

Nodal is one such company that has risen to the challenge and offers not only the bureaucratic bells and whistles of timesheets, bookkeeping and guaranteed weekly payments through ledger technology, but it will also use an AI-led algorithm that will allow employers to search for talent via multiple data points, matching the best freelancers for the right job,” Vigo points out.

Yet, those efforts may not be sufficient. We’re all overtly aware of the lawsuits launched against gig companies like Uber by workers who feel that they’ve been misclassified as independent contractors. Given how politically engaged freelancers are, it’s natural to assume that when they believe their autonomy has been compromised, they will demand the same treatment accorded to traditional employees. Then there’s the government.

As reported in the National Employment Law Project, “Employers in an increasing number of industries misclassify their employees as independent contractors, denying them the protection of workplace laws, robbing unemployment insurance and workers’ compensation funds of billions of much-needed dollars, and reducing federal, state and local tax withholding and revenues, while saving as much as 30% of payroll and related taxes otherwise paid for ‘employees.’”

In California alone, according to the state’s Department of Industrial Relations, worker misclassification “results in a loss of payroll tax revenue to the State, estimated at $7 billion per year, and increased reliance on the public safety net by workers who are denied access to work-based protections.” And California is prepared to do something a bit drastic about it.

Introducing California State Assembly Bill AB5

AB5 passed the California State Assembly in May and will be heading to the Senate for consideration around September. The bill would extend labor protections and benefits to many workers formerly considered freelancers or independent contractors. Those benefits include healthcare, overtime, and minimum wage, to name a few.

“If the measure passes the Senate,” explains Associations Now, “nonprofits and associations that use freelancers in California may need to reclassify these workers as full-time employees entitled to employee benefits. This would apply not just to associations headquartered in California, but any U.S. association that employs contractors in California.”

“If passed, AB 5 will make the ‘ABC’ test the standard for determining employment status in California,” the article continues. “The test is far stricter than federal regulations for determining employment status. It states that a worker can only be considered an independent contractor if they are free from the ‘control and direction’ of the company they work for; performing work that is ‘outside the course’ of the company’s usual business; and have their own independently established trade, occupation, or business.”

In some ways, California’s actions echo the “equal treatment” standards we have seen in European countries. Consider the United Kingdom. After 12 weeks on the job, a temporary worker qualifies for the same rights as a person directly employed by the company. Those rights include:

  • Equal pay (the same pay as a permanent colleague doing the same job)
  • Automatic pension enrollment
  • Paid annual leave

While online freelance work keeps expanding, some analysts are beginning to question the sustainability and longevity of the freelance economy due to the overall lack of labor protections and bargaining rights. With states like California cracking down, those doubts magnify.

Staffing Companies Could Provide the Middle Ground Solution

On August 6, we published an article covering the contest between the U.S. Congress and Google, in which a group of senators issued a letter to Google CEO Sundar Pichai demanding that the company convert its staff of temporary contractors to full-time employees. On a much smaller scale, the government’s shot across the bow mirrors the wider story unfolding with California’s lawmakers.

The opposing sides aren’t likely to budge easily. Businesses want to continue reaping the advantages of the freelance economy while the state government wants a return to traditional employment (and tax) structures. But as we discussed in our previously mentioned piece, the staffing industry may just have the best middle-ground solution.

With contractors enrolling into staffing firms, they enjoy more latitude in picking their assignments than traditional employees, while receiving the legal protections of employees.

The staffing supplier is the employer of record, which means that the essential mechanics of traditional employment prevail. Workers receive benefits, they have statutory taxes withheld, they are covered by the staffing company’s insurance, they have dedicated HR support, and if the staffing provider has a robust employee engagement solution, the talent enjoy ongoing development opportunities and redeployment to other programs.

The case with Google and California ultimately illustrates the importance of staffing agencies as employers of record. It’s hard to see how simply demanding that all workers be full-time employees empowers businesses or the professionals who’ve chosen the liberation of freelancing.

Photo by Kyle Smith on Unsplash

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