by Rob Roper
The U.S. Department of Labor and the IRS announced again that they are “cracking down” on independent contractors and the businesses that hire them—an odd tactic when we are trying to grow the economy and unemployment remains stubbornly high. Independent contractors can be seen in all business sectors. From real estate agents to hair dressers to CPAs – these small businesses make critical contributions to our economy.
This crackdown could be particularly onerous for folks in a state like Vermont, where the majority of businesses are one-person operations. A recent report by the Small Business Administration covered by WCAX showed that “Vermont has 77,853 small employers. That’s 96.3 percent of the companies in the state…. But get this– 76.3 percent of the companies are so small, they don’t have any employees other than the owners.” That’s a lot of our friends and neighbors making a living independently.
People choose to become independent contractors for a variety of reasons. Think about the students working their way through college, unable to foot a full time job due to their academic courses; or new parents working as independent contractors, hoping to slowly transition back into the workforce as they settle in to the patterns of a growing family; or, anyone who enjoys the simple freedom of being their own boss.
Independent contactors also provide convenient, oftentimes necessary, flexibility for those who employ them. (Sometimes, that’s other independent contractors. Think of a one-man graphic design shop hiring a one-woman accounting firm to do the books). Plenty of businesses need specific jobs or tasks done for them on a part-time or as-needed scale and, in these cases, independent contractors are an efficient and cost-effective way to get the job done. In many cases, if these businesses were forced to hire full time employees to do these jobs, no one would be hired. The jobs would simply go undone and the people unemployed. Nobody wins.
However, between the IRS and Labor Department, a whole slew of regulations regarding independent contractors are being proposed and piled onto American businesses. These regulations could force businesses to spend more time and money on legal and accounting fees to comply with these new burdensome regulations – and less time growing and investing in their businesses.
If the federal government reclassifies thousands of contractors across the U.S. as employees, this will saddle businesses with all the extra costs and other liabilities that come with hiring an employee. It doesn’t take Nostradamus to see that this will lead businesses to terminate contracts and halt expansion. If businesses lose flexibility in hiring independent contractors, nationwide and here at home (see those Vermont states at the beginning of this article) our business climate will suffer.
The crux of the government’s objection to independent contractors is that independent contractors are contracting, well, independently of government meddling. With an independent contractor arrangement, a business is not forced into the role of being the state’s uncompensated tax collector for social security, Medicare and workman’s compensation. But, here the concern is not so much for the worker or the employer, but the bureaucracy.
There are some businesses that fraudulently abuse the independent contractor classification to the detriment of their employees, and they should be punished. But the government is on the brink of casting far too wide a net; one that threatens to catch not just those with bad intentions, but also many of our small businesses and workers who flourish under the independent contracting model.
Our economy, apart from struggling at this point in time, is changing rapidly through new technology and evolving lifestyle choices. (A recent survey of young people revealed that “job hopping” is not only the “new normal” for the millennial generation, it is the preferred path to finding a fulfilling career.) In solving both problems, the answers lie in more flexibility that allows for more creativity how we work and how we employ.
We need to stand up to DC and ask them to make the right choice for America’s businesses and independent contractors alike.
Rob Roper is the President of the Ethan Allen Institute