Legislative Notebook: New duties for independent contractors
Here we are, fresh on the heels of Labor Day 2016, speaking about Labor Relations in the changing world of commerce, economics and globalization.
As I listen, I hear plenty of voices on the conservative side of the aisle that basically say that 19th Century Vermont laws are good enough to regulate 21st Century Vermont workers. This is a ridiculous assumption- and a faulty one not based in fact.
An analysis of our two to three decades old quiet revolution of how work is being done and, by extension, how workers are and are not regulated may be a starting point to understanding the seismic shifts that have and continue to take place.
First, we have faced unprecedented growth in what some call the underground economy, a murky commercial arena inhabited by both career criminals hoping to conceal the profits of their crimes and fairly traditional, generally honest, workers doing fairly traditional jobs but being paid in "off the books" cash. The underground economy has proven to be almost impossible to police, and – when it is policed it is found to put limited amounts of cash into the pockets of workers in our state and it guarantees those workers have no protection under the law. Further, our state loses critical tax revenue.
Another economy is the Barter Economy, folks trading goods and services with each other. Bartering is as old as the hills but again fails to guarantee workers are protected and – since no actual cash is exchanged – the State again loses revenue.
Finally, we have ushered in a new economy – what some call the "Gig Economy" or the Uberization of Work – a new form of workforce made up of independent contractors, on-call workers, temp help-agency workers, and contract company employees who work for short-term engagements. A study by Intuit predicted that by 2020, 40 percent of American workers would be independent contractors. Other statistics point to the fact that nationally, in 1997,the size of the alternative work force was estimated at 127 million workers, roughly 10 percent of all American workers. Last year there were 149 million Americans classified as Gig Workers, representing 16 percent of the labor force. By 2026 the ranks of the alternative workforce is expected to include 161 million workers. None of this begins to address digital workers who may live in Bennington County but work via computer in a far-off place.
We know why these alternatives to traditional employment are springing up. Americans, including Vermonters, are seeing the middle class being squeezed out of existence. Working women and men are taking whatever jobs are available, under whatever terms they are offered, just to make ends meet. We should all be alarmed that within one decade from now, measured by median household income, 70 million Americans will be living below the average median household incomes found in nations such as Mexico, Turkey, Chile, Malaysia, and even Kazakhstan.
So, given all the complexities, what is the best way to regulate these emerging workforce models in ways that facilitate employment and economic growth in Vermont, protect our State's workers and somehow doesn't place undue burdens on employers from the smallest individual or family business to our largest corporations?
The truth is, no matter what other politicians might try to tell you, this is a very difficult problem to address. Anytime there are three parties to an agreement – in this case employees, employers, and the State – it is difficult to craft legislation that makes everyone happy.
If, for example, a bill is perceived as benefitting employees you can count on Conservatives attacking it as an example anti-growth legislation or regulation. If, on the other hand, it seems to favor employers, Progressives feel honor-bound to rise up and seek to protect worker rights. And, if it seems to favor the State, Progressives and Conservatives might join hands to attack a bill on general principles.
House Bill H.867, which sought to clarify how businesses classify employees versus independent contractors, is a classic example. If I am contractor and need to get more people to work on a specific large-scale job and sub-contract with another employer to help with the work, am I responsible for paying benefits, taxes, worker's compensation, etc.? Or, is the subcontractor acting as an independent contractor, and therefore responsible for these charges? What if I am a business that hires consultants on a temporary basis, but the job lasts longer than expected, say a year or more. Does the consultant fall under the category of employee or independent contractor?
These kinds of questions are rising more and more frequently, and it is critical that both employers and employees have access to clear, unambiguous answers. H.867 sought to find a fair balance that works for labor, by not shifting too much of the cost burden of being employed onto workers, and management, by clarifying what they are and aren't responsible for covering.
The bill did a good job but it did not pass. The situation comes down to this – drafting a law that fairly supports the rights and interests of both employers and employees in a fair way is extremely complex. General contractors with full time, regular employees say they are disadvantaged because they are forced to compete against contractors that don't have traditional employees, but instead leverage independent contractors. Not too surprisingly, one side says the other is using them improperly and the other side say they're not.
Technology plays a major role in this issue because the digital work forces grow as technology advances. Programmers, for example, can work from wherever they want, whenever they want, in a manner of their choosing. But, under current law, their status is unclear, leaving them potentially as exposed to negative outcomes as the people that hire them.
And, let's not forget that somewhere – dead in the middle of all this – are regulators that demand clarity in order to properly administer Vermont's labor statutes and regulations. H.867 2016 sought to settle most of the issues associated with independent contractors who, as stated earlier in this article, are comprising a growing segment of Vermont's workers as well as out of state, or offshore workers doing business in our State.
Here's what the bill would do if passed:
First, it would define an "Independent contractor" as a person who meets all of the following criteria. They must be free from the direction and control of the employing unit, both under the person's contract of service and in fact. They must control the means and manner of the work performed and operate as a separate and distinct business from that of the person with whom they contract. Independent contractors would hold themselves (itself) out as in business for itself and offer its (their) services to the general public. Finally, independent contractors would not to be treated as an employee for purposes of income or employment taxation with regard to the work performed.
The bill as currently written requires independent contractors to purchase Workers' Compensation coverage for its employees as provided under the statute.
Seem too complicated? Well, let's look at the current law. A Vermont worker is presumed to be an employee, unless that worker meets three criteria. The first is that the individual has been and will continue to be free from control or direction over the performance of such services, both under his contract of service and in fact. Examples of this are individual bidding for the job, completing the job with no direction, supervision or set hours, and being paid by the job. The second criteria is that such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed.
Let's see if we can translate that into English.
This includes someone who does work at their own facility – say their house – which none of your employees does, and for which you do not advertise. The third criteria covers individuals customarily engaged in an independently established trade, occupation, profession or business. Examples of this could include people who have employees of their own; individuals with liable UI account with VDOL; and other people who advertise their business services to the general public.
Confused yet? I don't blame you, and that is exactly the point.
Whenever you hear someone, a politician or anyone else complaining about this, or any other bill, stop and ask yourself a simple question: "How can laws of the past, when most Vermonters made their money working the land or in simple industrial settings, possibly cover Uber drivers, or call center workers in Pakistan working for Vermont-based companies, or barter labor, or Vermont digital workers hired by Silicon Valley firms, or consultants working in our state but living in Texas?"
Well, I think all of us are smart enough to intuitively know the answer to that – they can't. For better and worse, we've come a long way as a state from a world where the definition of work was easily understood by all and the rules governing labor were clear to both employees and employers.
It's time to update the law, not in order to create work for the General Assembly or to cater to a special interest. No, it's time to update the law because the times have changed. The changes are monumental. Therefore, we cannot afford to sacrifice the best interest of Vermont's employees, employers or the State itself on the alter of fear of change.
As Abraham Lincoln said in his day, we might say in ours, "we must disenthrall ourselves." New thinking is required to rise to meet our new 21st Century challenges, which are represented in a small way in the complexities addressed H. 867.
Steve Berry is a State Representative for Manchester, Arlington, Sunderland and Sandgate.
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